Apartment market picks up steam as more units are coming

Oct. 22, 2018

Leasing up the largest apartment complex in Sioux Falls provides at least one barometer for the health of the city’s multifamily market.

“And it’s been unbelievably good,” said Joel Dykstra, CEO of RMB Associates, which developed the 328-unit Graystone Heights project in southeast Sioux Falls.

The first buildings at Graystone Heights opened in early 2017. The last one opened Sept. 1. Dykstra estimates the project is 75 percent occupied.

“We weren’t required to do that until April of 2019, so we’re more than six months ahead,” he said.

“This summer has just been great, and by the end of this month we’ll be 80 percent occupied. And we expect to be stabilized at 90 percent by the end of the year.”

That would put the project on par with the overall Sioux Falls market, which had a 9.2 percent vacancy in conventional apartments as of July, according to the South Dakota Multi-Housing Association. That’s down from 11.5 percent in January.

Dykstra said the trend reflects what his company is seeing across its portfolio.

“Over the last couple years, it has softened from the really high 90s down to 90ish,” he said. “The southeast part of town continues to be very strong, and that’s great for us.”

Bender Midwest Properties, which operates the nearby Villas at Canyon Creek at 57th Street and Sycamore Avenue and has a total of 1,300 units in the market, has seen similar numbers, president Jill Madsen said.

“We’re right in there. We’ve seen an uptick just in the last month of activity, which we’re glad to see this time of year,” she said. “Sioux Falls is still a vibrant community. It might seem dramatic for us to have higher vacancy rates, but when you consider the number of units we’ve brought into the market, we’re still thriving. We want people to have choices when they move to Sioux Falls. That’s good for the community.”

The city issued building permits for 831 multifamily units through September, 47 fewer than the same time last year.

The multifamily portfolio at Lloyd Cos., which includes 5,000 units in the Sioux Falls metro area, also looks similar to the city average, said Ashley Lipp, vice president of residential property management.

“I would say we’re pretty on trend with the vacancy survey for the past six months,” she said. “Our strongest occupancy months are always spring and summer into early fall. Once the weather changes, people don’t like to move. Our strongest month is typically March, and this year it was April, and I think the weather had something to do with that.”

Late spring and early summer were slower than normal for leasing at Legacy Developments, which manages about 450 units, CEO Norm Drake said.

“March was really strong, and August and September were really good,” Drake said. “There’s a lot of demand for apartments right now.”

Finding, keeping tenants

Leasing up new properties generally is easier than filling vacancies at existing ones, Lipp said.

At The Cascade, Lloyd’s newest downtown project opening next year on North Phillips Avenue, interest was strong enough to warrant a lottery party this summer to determine the order in which tenants could choose units.

“There’s been a lot of excitement around The Cascade,” Lipp said. “We have about 20 percent of it leased, which is pretty cool. It definitely shows downtown is an area people want to be and want to live.”

To continue the momentum, Lloyd is holding hard hat tours of the project Saturday.

“We still have availability and look forward to giving more tours,” Lipp said. “We know it’s a lifestyle decision when people choose to live downtown, and there’s a lot of interest right now, which is awesome.”

Lloyd also is leasing up Edgewater Villas near 85th Street and Minnesota Avenue, “another area that is really starting to blossom,” Lipp said, and Sawyer Pointe in Harrisburg. New phases of its east-side Dublin Square and The Meadows on Graystone also are opening up.

At Graystone Heights, Dykstra credits the robust leasing to targeted marketing and word of mouth.

“We put a significant online marketing push behind it, and we were targeting employers and people who were hiring and where the traffic would come in,” he said. “And I really think the biggest attribute of Graystone Heights is there’s such a strong community of residents.”

While the initial residents were downsizing baby boomers, the project now has a range from young professionals to retirees.

“It’s been really organic. It’s coming from residents developing activities on their own — potlucks and pool parties and pool tournaments. You’ll come in the community room and they’re working on a puzzle. There’s lots of community. It’s the highest of any of our properties for referrals.”

The highest vacancies citywide are in the ZIP codes 57108, which had a 16.4 percent vacancy in conventional apartments in July, and 57103, which had 15.5 percent vacancy.

“What’s surprising is our higher vacancies are actually in our more affordable units,” said Madsen at Bender. “I keep hearing we don’t have enough affordable units, but I have units available that are really nice and affordable. For two-bedroom units, I’ve got them at $690 to $740, which are really good rates.”

The numbers seem to back up that experience. There are 196 vacant two-bedroom apartments in the 57103 ZIP code priced between $605 and $950 per month.

To retain residents at older properties and get prospective ones to consider them, all the major landlords in town said they’re continually making renovations.

“We’re always trying to keep up with the basics,” Madsen said. “Carpet and paint and light fixtures make a big difference.”

Legacy is doing what Drake called a substantial renovation of its Brentwood Apartments at 703 N. Elmwood Ave.

Lloyd has renovated its Cleveland Heights apartments at 2708 E. Eighth St. with new flooring, cabinets, appliances and paint, and has done the same with Ridgeview Apartments at 2909 E. Sixth St.

“They’re beautiful,” Lipp said. “While they’re older properties, they feel brand new. We were able to put washers and dryers in some units, and it’s really just reinvesting in those properties and revitalizing the neighborhoods that they’re in.”

New building plans

Drake’s next apartment project could start yet this year.

The 87-unit 3rd Avenue Lofts will bring one-bedroom and two-bedroom units to the edge of downtown west of Third Avenue between 12th and 13th streets.

They likely won’t open until the spring of 2020, though, “so we won’t press construction real hard,” he said. “That’s just timing.”

Lloyd has several large projects coming, including The Cascade downtown and West 41st Street Commons, a town home project that will open late this year near 41st Street and Ellis Road.

Others are looking at building more properties.

Projects are being considered at Bender Midwest.

“We’re looking at floor plans and units mix just trying to decide that sweet spot,” Madsen said. “I think we’ll probably make some decisions in the next three to four months.”

At RMB, Dykstra is turning the focus to retention of residents before building anything new. His next one could involve something near a future 85th Street interchange at I-29, he said.

“We’ll make the decision in about a year, but we’ll watch to see how much gets built in a year and what the market absorbs.”

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Apartment market picks up steam as more units are coming

After starting the year with double-digit vacancy, the city’s apartment buildings are a little more full. But more projects are coming.

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