Even as a new year starts, the news surrounding the commercial real estate business remains grim.
But there are positive signs. This is especially true in a market like Minneapolis/St. Paul that, though down from its best years, is still relatively stable.
Just ask Patrick McNulty.
He is the director in the Chicago office of Uniondale, N.Y.-based Arbor Commercial Mortgage. And he had plenty of positives to bestow on the strength of the multi-family market in Minneapolis/St. Paul.
“Minneapolis is a great market,” McNulty said. “It is still doing very well when it comes to having a healthy multi-family market. It is one of the stronger markets we see in the Midwest.”
The reasons are many: McNulty cites a diverse economy that doesn’t rely on just one industry. He also points to the fact that Minneapolis/St. Paul didn’t overbuild during the real estate boom years. That’s helping the region today.
“The Minneapolis/St. Paul market just has one of those economies that doesn’t go through booms or busts,” McNulty said. “They don’t overbuild. Vacancy rates are strong. You just won’t see a boom or bust like you’d see in a New York, California or Chicago. It’s just a more conservative market, and that’s helped during these challenging times.”
Like most markets across the Midwest, the Twin Cities region does have its problems. But the multi-family market here remains the strongest of all the commercial real estate sectors.
This is hardly surprising. Multi-family ranks as the healthiest commercial sector in the vast majority of major metro markets across the country.
McNulty said that multi-family is simply better able to withstand economic downturns because of its nature.
“When a bad economy hits, it’s a direct hit to the office and retail sectors,” he said. “Vacancies in those sectors rise quickly. There are company layoffs. Stores close. With multi-family, the results of a bad economy are more indirect. People may lose their homes, but they have to live somewhere. So they turn to multi-family properties. The population for multi-family is always either stable or increasing it seems.”
McNulty says that he sees multi-family performing even better in 2011 and beyond. The market hit its bottom in 2006 through 2008, he said, stabilized in 2009 and has been experiencing a slow and steady recovery since.
Rents are slowly rising – very slowly in many markets, but this is better than falling rents – while vacancies are steadily decreasing, McNulty said.
That doesn’t mean, though, that even multi-family doesn’t face challenges in today’s struggling economy.
“I wouldn’t say that I’m the biggest bull in the street shouting that things are fantastic,” McNulty said. “But I am cautiously optimistic. Even minor rent increases are better than decreasing rents.”