The multi-family sector has an advantage today: A growing number of young consumers prefer apartment-living to the responsibilities and monthly mortgage payments of owning single-family homes.
And in even better news for the middle of the country, Michael Jehle, vice president in the Bloomfield Hills, Mich., office of Arbor Commercial Mortgage said that the Midwest is a particularly strong region for the multi-family sector.
There are several reasons for this. The Midwest is seeing strong employment growth. And when new jobs hit an area, people want to move there. At the same time, Midwest cities didn’t see much new apartment product added to their neighborhoods during and immediately after the Great Recession. That has boosted demand for existing products and made finding financing for new apartment communities an easier task.
“You can list many cities in the Midwest – Minneapolis, Kansas City, Chicago, Ann Arbor, Columbus – and say that those markets are on fire right now when it comes to multi-family,” Jehle said. “We really did not see much new apartment development at all from 2008 to 2011. Now we are seeing almost the perfect storm for owners and investors of apartment projects. I can’t remember when the economics for multi-family have been better in this region during the last 15 years.”
Young consumers, of course, are a key to the enduring strength of the multi-family market. It’s why so many of the new multi-family projects are planned for the CBDs of major cities. As Jehle says, there was a time when most new apartment developments rose on the outskirts of markets where abundant land was available for construction.
But there was a downside to this: Such locations required a long commute into employment centers. Today, a growing number of renters want to live close to where they work. They don’t want the long commute. As Jehle says, some younger renters don’t even want the hassle of having to own a car. They’d prefer to live in walkable neighborhoods close to public transportation, neighborhoods that are usually located in the CBDs of bigger cities.
At the same time, many younger people don’t want the responsibility of owning a home and making monthly mortgage payments. Many of these same young people are getting married and having children later in life.
“The need, then, for having a large home for their children and dog isn’t as great as it once was,” Jehle said.
Thomas Sigrist, senior vice president and branch manager with the Chicago office of Berkadia Commercial Mortgage, doesn’t expect young consumers to flock in large numbers to single-family homes any time soon.
“Younger people today don’t want the attachment of a single-family home,” Sigrist said. “They want the ability to get up and move. They want to be able to transfer easily if they get a new job opportunity. That’s something that you might not be able to do if you are paying off a mortgage loan on a single-family home.”
