Out with the housing market crash, in with the apartment resurgence.
Despite an economy still in the earliest stages of recovery, some apartment construction projects are securing hard-to-get loans and moving forward as developers count on apartment living coming back into favor. After a decade that emphasized homeownership and for many ended in foreclosure, many housing experts predict that renting will rebound.
"Attitudes toward homeownership have been shifting," said John McIlwain, a senior resident fellow for housing at the Washington-based Urban Land Institute. "It's seen now as riskier and not as a path toward wealth unless you stay in the home 15 or 20 years."
In the Baltimore area, several apartment projects are moving ahead. Less than a mile from Ellicott City's historic downtown, crews have demolished an old house to make way for luxury apartments for a couple of hundred new residents. Near Fort Meade, more luxury apartments are sprouting where a trucking terminal once stood. In Locust Point, apartments will be started this summer to appeal to urban dwellers who want to live near shops and restaurants.
Construction had come to a near-standstill on most multifamily housing projects, a slowdown that began in 2008 and worsened last year as conventional financing dried up. Developers who build and sell their projects have been especially hobbled. When they can't sell or refinance projects to repay a bank loan, it clogs the financing stream for other projects. And as rental rates drop, developers can't afford to build.
So while some apartment projects are under way in the region, hundreds of units are likely to stay on the drawing board until the economy rebounds. For now, the rental market is weak. And vacancy rates have increased as foreclosed homes have flooded the rental market and as job uncertainty forces family members to move in together.
Average rents are down almost everywhere, though only slightly in the Baltimore metro market, to an average $1,375 for Class A, or newer apartment buildings with amenities, according to Delta Associates. As of December, Class A vacancy rates average 7.4 percent in the Baltimore area, which still has fared better than many cities.
But those moving ahead with rental projects see a bright future, with pent-up demand and other factors behind the trend. Because new apartment construction starts have fallen to post-World War II lows, apartments could be in short supply in the next couple of years. Meanwhile, a declining homeownership rate combined with a growing number of 18- to 24-year-olds is expected to raise the number of new renters.
"Supply is so limited that demand, when it comes back, should have a pretty good snap back," said Ric Campo, chief executive of Camden Property Trust, a real estate investment trust that owns six apartment complexes in Maryland and one parcel on which it plans to build eventually.
The strength of that future demand will hinge in large part on how quickly the unemployment rate drops, experts say. Once employment stabilizes, more young adult renters will likely leave home or roommates to strike out on their own. They are expected to put off buying a home in light of the foreclosure crisis and instead rent.
If the unemployment rate, now at more than 10 percent nationally, drops into the 6 percent to 7 percent range by 2012, "most people are expecting the rental market to really pop back," McIlwain said. And rental demand should only grow throughout the rest of the decade, he said.
"As Generation Y moves into households, they're going to rent first, and they're going to rent longer than prior generations," McIlwain said. That's partly because renters who want flexibility for their jobs might not buy if they believe a home might not appreciate quickly or be hard to sell, he said.
In Baltimore City and in Baltimore and Harford counties, the number of units in planned rental projects that could be completed in the next three years has grown to just over 1,900, up from 1,570 that were in the planning stage as of the end of 2008, according to Delta Associates. But the number of new units in the pipeline is well below the peak of 2,780 units at the end of 2006, Delta said.
The projects, some of which are expected to start construction this year, include a total of more than 900 garden apartment units in Aberdeen, Owings Mills and Towson. And in Baltimore, eight new mid-rise or high-rise apartment buildings are planned with a total of more 1,000 new units.
In Ellicott City, Wood Partners, in a joint venture with a landowner Century Holdings LLC, has just broken ground for Alta at Regency Crest, a $30 million apartment complex for people 62 and older. The community, which secured financing through a U.S. Housing and Urban Development loan, will offer 150 large one- and two-bedroom units and a clubhouse with an indoor pool, yoga room, hair salon, business center and theater.
"We think there's a large demand for seniors both on the affordable side and the market side, both in Howard and surrounding counties," said Scott Zimmerly, a director with the Atlanta-based developer. But their ability to rent apartments will depend on the housing market coming back, because many potential renters would be moving from a home they need to sell, he said.
The apartments would be available by the first half of next year.
"We're optimistic by then that homes will be selling at a decent pace, and there may be pent-up demand from seniors who have not been able to sell until then," he said. And the pipeline of supply has been drying up over the last couple of years, so "we anticipate demand may outweigh supply."
In Locust Point, developers plan to begin construction in early summer on the apartment phase of McHenry Row, a complex with housing, shops and offices. The 150 units in The Residences at McHenry Row, to be finished in mid-2011, will be targeted to renters who work in the neighborhood, downtown or in the business hub around Baltimore-Washington International Thurgood Marshall Airport, a 15-minute drive away, the developers say. An office building is under way now, with the first tenants set to move in in September. A Harris Teeter grocery store also is planned.
"Our primary market will be people who want to have the urban experience with a mixed-use product," said Abraham Rosenthal, chief operating officer of 28 Walker Development. "We see very little new supply coming on line in the next few years, so I think we will benefit from that."
In Jessup, construction has begun at Mission Place, a new subdivision of for-sale town houses and luxury apartments on a former trucking terminal site. The first apartments will be available this year. Demand for Mission Place's 262 units, with rents ranging from $1,250 to $1,500 a month, is expected to be spurred by the addition of several thousand jobs at Fort Meade. The subdivision is expected to attract commuters to Annapolis and Columbia who want amenities such as a fitness room, theater and pool. It will eventually have shops and an office building.
"It's very slow for new construction, and the only projects you are going to see come out of the ground are those where the market demand is clearly demonstrated," said Drew Dolben, a senior vice president for the developer, Woburn, Mass.-based Dolben Co. "We're trying to match delivery of our product to when the increase in people working at the fort will come in."
Another project moving ahead this year is Marketplace at Fells Point, which is intended to transform the blocks around the Broadway Market in Fells Point into 160 new rental apartments and shops. The $52 million project is moving ahead only because it was approved for $8 million in federal stimulus financing.
But other developers are forced to wait until conditions are right to dust off plans that lack financing, such as the second phase of construction that would add rental housing to Silo Point, a former grain elevator in Locust Point converted to luxury condominiums, and plans to add housing and shops to a redeveloped Rotunda shopping center north of Hampden.
The 302-unit apartment high-rise planned for the site will move forward when market conditions are more favorable, said Christopher P. Bell, manager of the project for developer Hekemian & Co. And that, at the moment, is the great unknown.
"Although I am fairly certain we will not start the project in 2010," Bell said in an e-mail, "we do plan to get it started as soon as the capital markets settle down."
Area Class A apartment rental and vacancy rates
Average rents as of Dec. 2009 Change from Dec. 2008:
Columbia $1,440 -0.9 percent
Anne Arundel County $1,414 -0.1 percent
West and Northwest Baltimore County $1,283 -0.3 percent
North and Northeast Baltimore County $1,288 0.8 percent
Harford County $1,038 1.9 percent
Baltimore City $1,504 -6.1 percent
Vacancy rates as of December 2009:
Columbia 5.9 percent
Anne Arundel County 8.2 percent
West and Northwest Baltimore County 3.6 percent
North and Northeast Baltimore County 19.2 percent
Harford County 0.9 percent
Baltimore City 8.2 percent
Source: Delta Associates