The Connor Group, a Dayton, Ohio-based firm that owns and manages 13,000 units in Georgia, Ohio, North Carolina, and Texas, recently acquired three properties with a total of 873 units in Columbus for $46.8 million. CEO Larry Connor says investors can expect cap rates of 7.5 percent to 8 percent in Columbus, which is about 150 to 200 basis points higher than the rest of the country. In overheated markets such as California, cap rates for Class A properties dipped into the 4 percent range. “In terms of ROI, Columbus rivals North Carolina, which is clearly one of the best growth markets in the nation,” he contends. [For more on the Columbus, Ohio, market, see “City of Industry” on page 21.]
The Connor Group also is investing heavily in another Ohio market: Cincinnati. Over the past 12 months, the firm has invested nearly $100 million in the market by acquiring five existing apartment assets totaling almost 1,200 units. The company, which has invested in Cincinnati for several years, is headquartered in nearby Dayton and is well aware of Cincinnati’s strengths, including its diverse economic base, which includes corporate powerhouses such as Proctor & Gamble, Kroger, and Federated Department Stores. Moreover, Cincinnati has maintained its population over the years, and its unemployment rate actually decreased from 5.3 percent in May 2007 to 5.2 percent in May 2008, according to the U.S. Bureau of Labor Statistics (BLS).
As a result, Cincinnati’s apartment market is among the healthiest in the Midwest, experts say. With very little new construction in the market—no new units have come online since January 2007—occupancy has increased to almost 95 percent, according to REIS.
Like The Connor Group, Cincinnati-based BRG Apartments is investing in its hometown. “Cincinnati has never experienced the ups and downs of the coasts,” says Bruce Hellman, president of BRG Apartments, which owns or operates 6,000 units. “Maybe we’ve not grown as fast, but we have grown. We think it’s a great time to be investing in our backyard.” The firm has invested $36 million in northeast Cincinnati since December 2007, acquiring three Class B properties totaling 566 units.
MINNEAPOLIS/ST. PAUL Minneapolis/St. Paul is a Midwest market that many national investors seem to overlook. But several local and regional investors are increasingly interested in the area, which is the second-largest Midwest metro after Chicago. Even during this current economic slowdown, the Twin Cities have seen slight employment growth (0.5 percent), according to the BLS. At the same time, the area has benefited from in-migration, both foreign and domestic, according to Solomon Poretsky, regional manager in Marcus & Millichap’s Minneapolis office.
Poretsky points out that many college graduates from Midwest universities are now moving to the Twin Cities instead of Chicago for the abundant job opportunities there. In the past, Chicago offered more job opportunities than any other market. While that is still true in terms of actual numbers, Minneapolis now also offers a lot of opportunities, giving graduates a choice. This influx of young professionals has benefited the rental market, pushing vacancies to 4.5 percent and encouraging rental rate growth of 2.7 percent so far this year. Village Green Cos. is just one investor that is pouring money into Minneapolis, particularly in the city’s downtown. The firm has built four downtown apartment communities, totaling nearly 550 units, in the last five years and is proposing to build a fifth one, CEO Holtzman says.
CLEVELAND AND DETROIT With all the bad press Cleveland and Detroit receive, it’s hard to believe that there’s anything good to say about these two Midwestern cities. And it’s even more surprising to find that there are apartment investors out there who feel good about these markets.
Village Green Cos. is continuing to invest in the Detroit metro area; it currently manages nearly 9,000 units in 39 properties throughout the region and has an ownership stake in 21 of those properties, totaling 5,577 units. Meanwhile, The K&D Group, a Willoughby, Ohio-based commercial real estate developer, is investing in Cleveland’s apartment market primarily through new development.
Both Detroit and Cleveland have seen their multifamily inventories shrink considerably over the past several years. In metro Detroit, for example, obsolete apartment communities have been closed and demolished, and very few new properties have emerged to take their place, according to Village Green CEO Holtzman.