Kenneth Bowen, senior vice president in the Columbus office of Oak Grove Capital, sees firsthand just how popular renting has become in Midwest downtowns. And the best news? Grove doesn’t see the downtown boom ending in the near future.
Midwest Real Estate News recently spoke to Grove about the continuing love for Midwest urban centers and the reasons behind it.
Midwest Real Estate News: Oak Grove Capital focuses on lending in the multifamily sector. What do you look for, though, before deciding whether to approve a financing request? Kenneth Bowen: We look for strong locations with high demand. We look for borrowers who have the experience to build the project or operate it properly. And in terms of financial capacity, we look for borrowers who have the wherewithal to support a property through a market downturn or a hiccup. Whoever you are lending to, you want people with a history of making their payments on time. You wan to work with people who have additional liquidity and a strong enough net worth so that you feel you have a substantial backer to the project.
MREN: How strong is the multifamily market today? Is it still as hot as ever? Bowen: There is still a lot of development going on around the country. And a lot of that development is taking place in downtown areas. There has been a kind of a sea change in where people want to live. More people want to live downtown today as opposed to the suburbs. The downtowns of a lot of cities are somewhat under-served in terms of apartments. The growth of multifamily in downtowns, then, is a phenomenon that will continue to grow. Cities keep spending money to make their downtowns look more attractive. They are constantly adding new amenities. The more attractive a downtown is, the more people who will want to live there. Then it keeps growing, which makes it more feasible for businesses and services to keep opening up. People like to be able to walk places. People like to talk about walkability scores. The walkability score is one of the new ratings people use when assessing locations. How easy is it to walk to employment, restaurants, shops and entertainment?
MREN: How about in Columbus? Are you seeing more apartments coming online in the city and its surrounding neighborhoods? Bowen: We are seeing quite a few apartments coming online in downtown. People are surprised at the level of rents they have been able to achieve in the downtown neighborhoods. It is not in my mind simply a matter of supply and demand, either. There is also a sort of willingness, a purchasing power, among consumers. People don’t mind spending $1,100 a month for a studio apartment in downtown Columbus. Just 10 or 15 years ago, we would have found that pretty hard to imagine. Young people with good professional jobs are willing to pay high rents. They might have an old beater car. They don’t worry about having nice furniture. More are paying for a lifestyle. We’re seeing this with empty nesters, too. They want to take time to enjoy life and live where they can walk home after dinner and a few drinks.
MREN: What about the other commercial sectors? Are you seeing a lot of financing requests for retail, office and other sectors? Bowen: For retail we are seeing financing requests. But we still need more retail establishments in downtown Columbus. If you don’t have that constant foot traffic in an area, retail just doesn’t seem like as strong a product.
We are seeing some interesting trends in the office market, too. Employers are reducing the amount of square footage for each of their employees. Some law firms still like to have big spacious offices, but many other employees do not. People want a place to work, but they don’t really need private offices like they once used to. They can work from pretty much anywhere. There was a time when the office market was driven by the egos of CEOs. They wanted to move their companies closer to their homes. They wanted to build large spaces to celebrate themselves and their companies. The younger generation is not as much into that kind of thing.
The younger generation are seeing less of a need for large office spaces. Why do you need an office? You need it to make phone calls and store files. Nowadays, people are more averse to paper. They store files electronically. Phones are mobile. Today, the biggest demand for more traditional office space is coming from companies that want to keep an eye on their employees to make sure they are all working. Companies that trust their employees to work from home or while traveling are not looking at traditional office space.
MREN: When you look at the multifamily market, how long do you think it will remain such a hot housing choice? Bowen: It will change. The young people will soon start having children of school. When they happens, they’ll want to live in a better school district. So they’ll start buying homes again. But people will be buying homes for the right reasons, which is a good thing. Instead of buying a home because they are speculating, they’ll be buying homes to get into certain neighborhoods and school districts. That’s the right reason to buy a home.