According to Kenney, the Columbus rental market is very strong now after the collapse of the condo conversion market. New units are always a premium for renters in this market.
INVESTMENT OPPORTUNITIES Apartment communities in Columbus remain attractive to investors, though there has been some recent change. Over the past 12 months, cap rates have risen, up about 100 to 150 basis points across the board for all project types. Additionally, while there is still capital available, lenders have tightened their lending criteria, requiring investors to put more equity into a deal to get it done.
Currently, the main buyers are local or in state investors who are opportunistic and looking for cash flow. This is a shift away from previous years since many out-of-state private investors who previously eyed Columbus as a tremendous opportunity have returned their focus to more familiar primary markets. While this was happening, the local or in-state buyer remained on the sidelines unable to compete with out-of-state investors who were driving the prices up. One of the more recent large, out-of-state deals closed in March. New York-based DRA Fund VI, in a joint venture with Greensboro, N.C.-based Steven D. Bell & Co., acquired 86 communities from UDR, a REIT in Highlands Ranch, Colo., for $1.7 billion. Of these 86 communities, six were located in Columbus, encompassing more than 2,500 units.
Looking to capitalize on this fluid, less competitive market is LANDIS Properties, a family-owned investment and management company in central Ohio that was formed 30 years ago by Inder and Lida Sethi. Currently, the company manages 12 communities encompassing approximately 750 units in Central Ohio, all of which are owned by the family’s holding company, Sethi Associates. The past 18 months have been relatively quiet for LANDIS, with its last acquisition being the Acropolis Apartments, a 78-unit community in Northwest Columbus that they purchased in January 2007. The firm’s inactivity is about to change, however, as the owners expect to resume aggressively growing the company over the next five years. Their goal is to acquire and manage B+ and B properties that are under the radar of national investors. They would also like to expand their third-party management business.
“We are looking to acquire properties in strong submarkets where we can improve cash flow with better management,” says Neil Sethi; he and his brother David represent the other two partners in Sethi Associates. “We continue to believe in the Columbus apartment market due to the area’s diverse economy and stable fundamentals,” he says.
Neil Sethi adds that over the next six to 12 months, sellers will need to become more flexible with pricing as lending conditions have changed and financial partners require much more rigorous underwriting and higher loan-to-value and debt service ratios. He looks ahead, though, to lenders gaining a better understanding of the economic strength of Columbus as compared to other Midwest markets.
While many out-of-state investors and developers aren’t as bullish on secondary markets in the Midwest, Columbus continues to thrive. Over the next few months, the region will continue to break away from that perception and general sense of negativity as those in the marketplace realize the true benefit to the area.
The bottom line is that the economy in Columbus continues to be as diverse as most primary markets, and it’s a favorite for people to live. So as the other markets around the country look to adapt from the subprime debacle and, to a certain extent, rebound from the condo conversion crisis, Columbus will continue to be a stable place now and into the future.
Jerry Hall, CCIM, is managing director for Sperry Van Ness in Columbus, Ohio.
FAST FACTS Considering Columbus, Ohio? Here’s what you need to know:
- Population: 1,644,339
- Occupancy: 92%
- Median Age: 30.6
- Median Household Income: $40,405
- Average Rent: $526 (one-bedroom units); $643 (two-bedroom units)
- Unemployment: 4.9%
NOTABLE: Home to Ohio State University, the largest campus in the country both physically at 1,755 acres and in terms of the number of students (48,511). The first soccer-specific stadium was built for the Columbus Crew professional team in 1999. Columbus is also the 15th largest city in the United States. And the nation’s first gas station was built in Columbus in 1912.
MFE DOZEN Raleigh, N.C. (January) A not-so-sleepy Southern town
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