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Notable mention in recent MiBiz article of our Team Member Craig Black

GRAND RAPIDS — Although a formal GOP tax reform bill has yet to be introduced, executives in the commercial real estate industry are already expressing concern.

In particular, sources worry that any possible reform could include the removal of the 1031 Exchange, a tax loophole that allows real estate investors who sell a property to reinvest the proceeds into a similar, “like-kind” property and defer any tax payments.

At a panel discussion in Grand Rapids hosted by the West Michigan chapter of the Turnaround Management Association, commercial real estate executives noted that 1031 deals have been a major driver of industry activity as of late, specifically with regards to the returns investors expect to see, known as capitalization rates.

“1031 money is out there for sure. It drives our cap rates,” Jordan Jonna, an executive at A.F. Jonna Development LLC, a Bloomfield Hills-based firm focused on retail shopping centers in Southeast Michigan. “It drives our investments today. If you sell a property, you’ll be a little more aggressive in buying another one simply to roll your dollars and not pay tax. It makes common sense.”

The concerns expressed Jonna and others underscore the broader challenges inherent in tax reform, where each interest group has its own part of the code it wishes to preserve.

“Tax reform is going to make health care look like a piece of cake,” Sen. Bob Corker, R-Tenn., told reporters earlier this week, according to CBS News.

To that end, the National Association of Realtors (NAR), a Washington D.C.-based trade association for residential realtors, has already come out firmly opposed to the plan at least based on the early framework that’s been released.

The NAR, for its part, believes that any plan would likely lead to increased taxes on millions of middle-class owners and could likely disincentivize future homeowners.

“We have always said that tax reform — a worthy endeavor — should first do no harm to homeowners. The tax framework released by the Big 6 (this week) missed that goal,” NAR president William E. Brown said in a statement.

Depending on how any legislation gets put together, some economists believe there could be some bright spots for the construction and real estate industries.

“Construction would benefit from a plan that encourages more investment, brings home to the U.S. more investment,” said Ken Simonson, chief economist for the Associated General Contractors of America, an Arlington, Va.-based construction industry trade group.

“It’s going to have very mixed effects though,” Simonson said, adding that it’s unclear which industries would decide to invest their tax savings and what they might build as a result.

Locally, most commercial real estate brokers believe any major overhaul of the tax code — particularly an elimination of the 1031 Exchange — could have a chilling effect on real estate investment.

That’s according to Craig Black, an associate broker focused on multifamily apartment investments at Grand Rapids-based NAI Wisinski of West Michigan.

“Bottom line is, if 1031s go away, it will definitely impact the trades in the multifamily industry,” Black said. “If you can defer the taxes, it makes a much better investment.”

Notable mention in recent MiBiz article of the Multifamily Team

GRAND RAPIDS — A California investment group has acquired two, 168-unit affordable housing complexes in the Grand Rapids area and at least two other properties across the state, MiBiz has learned.

Affiliates of Beverly Hills, Calif.-based Stonebridge Global Partners LLC acquired Pine Ridge Apartments located near the East Beltline Avenue and 5 Mile Road NE and The Fountains apartment complex near the intersection of Burton Street and East Paris Avenue.

The transactions closed in late July and sold for $15.35 million and $14.75 million, respectively, according to public records. The deal also included apartment complexes in Midland and Menominee, the sale prices for which were not immediately available.  

Stonebridge is a real estate investment firm that specializes in owning and managing Section 8 multifamily complexes largely in the Midwest and southern portions of the country. The company also has an office in Singapore, according to its website.

Executives at Stonebridge Global Partners were unavailable for comment as this report was published.

The seller of The Fountains was Fountains Ltd. Partnership while Pine Ridge was sold by WMF/Huntoon and DP Services Corp., according to public records.

The four-property portfolio included a mix of market-rate and affordable housing units and all had received significant upgrades in recent years, offering an upside to an outside investor, according to commercial real estate sources.  

Affordable Housing Advisors, a division of commercial brokerage firm Marcus & Millichap Co. in Southfield, served as the broker for the transaction, according to a source familiar with the deal. Executives at the firm did not respond to multiple requests for comment.

The transactions mark a trend of large investment groups buying up apartment complexes in the region.

As MiBiz first reported on July 21, the 237-unit, high-end Ridges of Cascade apartment development near I-96 and 28th Street SE sold for $57 million to a Lansing investor.

In May, an Armonk, N.Y.-based company sold the Campus Court at Knollwood apartments for $53 million to Knollwood Loft LLC of Los Angeles, according to property records. The apartments are located at 1701 Knollwood Ave. near the Western Michigan University campus.

“Michigan and the Midwest continues to be an attractive location for investors from across the country,” said Scott Nurski, a multifamily investment adviser with Grand Rapids-based commercial brokerage NAI Wisinski of West Michigan.

Apartment occupancy in the Grand Rapids area stands at about 96 percent, according to the most recent market report from NAI Wisinski.

Going forward, Nurski — who was not involved in any of the Stonebridge Global transactions — said he continues to expect to see outside interest in the market, but the lack of quality inventory could make transactions difficult.

“There will continue to be strong interest and folks seeking that product,” Nurski said. “There’s no diminishing interest. As long as there’s product available, it will move.”

Recent Multifamily Closing

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naiwwmmultifamilyteamMultifamily Closing | 237 units | Grand Rapids, Michigan
NAI Wisinski of West Michigan recently completed the sale of Ridges of Cascade in Grand Rapids, Michigan. This exceptional 237 unit, Class A property sold for $57,000,000, or $240,506/unit, signifying the highest sale price per unit ever for a suburban multifamily property in Michigan! Scott Nurski and Craig Black, assisted by Jamey Casey, represented both the buyer and seller in the transaction. #multifamily #apartments #michigan #grandrapids #cre #apt #nai #naiwwm UPDATED! Website:

Ridges of Cascade sells for $57 million

Excerpt from MiBiz article highlighting recent NAI multifamily transaction…

Written By Nick Manes

CASCADE TOWNSHIP — A 237-unit high-end apartment complex in suburban Grand Rapids has sold for $57 million, MiBiz has learned.

Municipal property records show the Ridges of Cascade, a newly built apartment complex in Cascade Charter Township, sold to Lansing-based Country Club Manor LLC in a deal that closed on June 30.

The apartment complex sold at more than $240,000 per unit.

Roger Thornburg, a Lansing real estate agent and principal with Investors Equity Group Inc., is listed as the registered agent for the entity.

Thornburg did not respond to a request for comment.

Grand Rapids-based The LaCati Group LLC developed the roughly $30 million Ridges of Cascade project on the site of the former Centennial Country Club. The development opened in 2014.

Brokers Scott Nurski and Craig Black with NAI Wisinski of West Michigan were involved in the transaction, but declined further comment.

Commercial real estate sources not involved in the transaction note that the deal presented a unique opportunity for the buyers.

An exact occupancy for The Ridges of Cascade was not immediately clear, but NAI Wisinski’s most recent market report noted that occupancy for multifamily projects in the Grand Rapids area stands at nearly 96 percent.

Rents at the apartment complex range from $1,175 to $2,300, according to the property’s website.

Many of the national trends unfolding in the multifamily sector are playing out in Grand Rapids, the second largest city in Michigan, with a population estimated at 195,000 and slightly more than 1 million metrowide.

A combination of demographic, economic and lifestyle trends are leading to the creation of more renter households. This includes Baby Boomers, Millennials and renters by choice across all income levels.

In addition, Grand Rapids is experiencing an urban renaissance that is bringing new commerce, housing and amenities into the downtown area. During the 2016 National Multifamily Housing Council conference in Orlando, Grand Rapids was recognized as one of the top three small to mid-sized markets in the country for multifamily investment.

Annualized apartment rent growth in Grand Rapids has been running at a robust 7 to 8 percent for the past two years, but some momentum has been lost in the wake of a large number of units that have come on line. The annual rent growth slipped to 4.6 percent during the four-quarter period that ended Sept. 30.

The average occupancy rate remains above 97 percent, but is gradually coming off a peak of 98.6 percent in the third and fourth quarters of 2013. Overall, property performance is quite strong across both urban and suburban rental housing.

Favorable attributes

For those who live in Grand Rapids, it is well known that the city offers a great quality of life and an attractive investment environment. This is due to positive attributes such as a diversified economy, relatively low cost of living and a skilled workforce.

The unemployment rate in the Grand Rapids-Wyoming metropolitan statistical area was 3.3 percent as of August and has remained below 3.5 percent for the majority of 2016. Employment growth has remained steady with the addition of 11,312 new jobs during the 12-month period that ended in August, representing a 2.1 percent annual gain.

Furthermore, Grand Rapids offers a strong medical component that has been driven by several billion of investment over the past two decades. The Medical Mile district, located on the northeast edge of the Central Business District (CBD), is a renowned healthcare destination dollars. Comprised of clinical, research and academic institutions. The latest addition is the Michigan State University College of Human Medicine. These are only some of the factors that continue to drive demand for rental housing throughout greater Grand Rapids. High occupancy rates have put landlords in the driver’s seat in establishing rental rates, substantially increasing the revenues and values of apartment assets. However, the most notable result is the sudden boom in multifamily development, predominantly in the urban districts.

Urban lifestyle evolution

Grand Rapids has experienced a resurgence and tremendous urban renewal that started with the advent of the popular Van Andel Arena in 1996 and DeVos Place Convention Center in 2004. The CBD and surrounding urban districts now offer numerous museums, high-end hotels, bars, restaurants, breweries and the aforementioned world-class Medical Mile corridor. In turn, the revitalization of the CBD has brought renewed interest from retail and office-related businesses, as well as a desire for urban living.

The result has been a relatively sudden demand for urban, market-rate rental housing with only a nominal supply to meet this new demand. Prior to 2012, there were approximately 500 units of market-rate product within the CBD. This figure has since grown to 865 units. There are less than 2,000 units of existing market-rate inventory both in the CBD and immediately surrounding neighborhoods combined, counting projects 20 units and larger. This includes 179 units that came on line in 2015 and 499 units that developers have delivered so far in 2016. Currently there are 954 units under construction and an additional 1,545 units proposed or approved within these areas. An additional 658 units of affordable housing are also in the pipeline.

While supply is rapidly rising to meet demand, typical urban rents range from $1,500 to $2,000 per month. The high rents have sparked much discussion regarding how to maintain a gradient of affordability in and near the downtown area. To address this issue, some developers are beginning to introduce micro units — typically defined as studio-style units of less than 475 square feet — in order to create a lower entry price point for urban product. A wide variety of multifamily product is being added in and near the CBD, including modern steel and glass mid- and high-rise buildings, loft-style adaptive reuse projects, exquisite historic renovation projects and some student housing. A prime example of a modern highrise currently under construction is the Venue Tower, an eight story building that will feature 88 market rate apartment units, including 24 “micro-lofts,” as well as a music and entertainment club called 20 Monroe Live, which is a partnership with Live Nation’s House Of Blues Entertainment

Division. Recently completed, The Rowe is an exceptionally well-executed renovation/adaptive reuse of the historic Hotel Rowe building constructed in 1921. The building offers 77 luxury market rate apartments, eight luxury condominiums, rooftop amenities, first floor retail and underground parking.

Suburbs play catch-up

Rents in most suburban submarkets of Grand Rapids still do not support the cost of new construction. However, there are pockets with strong income levels or lean rental inventory where the economics make sense. The suburban construction pipeline is just starting to gain momentum. There are currently 1,112 units proposed or approved and 818 units under construction in outlying communities across metro Grand Rapids. This activity includes new projects, as well as several existing apartment communities that are expanding.

Investment darling

Investor demand for apartment assets in the Grand Rapids market continues to outstrip available inventory. While in-state investors are regularly seeking quality local product, more than three-quarters of transactions are completed with out-of-state buyers. The Midwest tends to provide higher yields than coastal markets, and Grand Rapids is no exception. Intense buyer competition has compressed cap rates to the low to mid 6 percent cap range. Based on recent transaction activity, Class C product is trading between $35,000 and $55,000 per unit, while Class B assets are trading between $55,000 and $90,000 per unit. No true Class A product has sold in 2016 within the Grand Rapids area.

Near-term outlook

Due to the urban renewal currently underway — marked by an influx of entertainment options, medical related development and a growing downtown workforce — there is a sudden demand for downtown living options. With limited supply on hand, this demand has been met with a tremendous boom in new apartment construction. Eventually the supply demand ratio will reach equilibrium, but until then construction cranes will be a fixture downtown. As often happens, developers run the risk of oversupplying the market. The pace of absorption of two bedroom units in and near the CBD is already beginning to slow down. Demand for studio apartments and one bedroom units remains strong. It is yet to be seen how well the next wave of units will be absorbed over the next 12 to 24 months.

In the suburbs, this new round of apartment construction should not significantly impact the real estate fundamentals in most submarkets over the next 12 months. The number of deliveries is modest in comparison to total apartment inventory. Although rent growth is beginning to moderate, it should maintain a healthy pace through 2017. Many properties are 100 percent leased with no landlord concessions in place. While asking rates may begin to temper, concessions are not expected to increase significantly as long as occupancy levels remain above 95 percent. Investor appetite for apartment assets, especially properties with over 100 units, has been insatiable. That appetite is not likely to abate soon as Grand Rapids continues to evolve.


NAI Wisinski of West Michigan - Fall Winterization Tips for Multifamily

Craig Black, CCIM of the Multifamily Team, discusses how to get your multifamily property ready for winter. Providing some ideas and steps on how to prepare yourself for the winter months ahead. 


RPOA Real Estate Investor Podcast - Episode #35

Interview with Scott and Craig regarding factors to consider when investing in multifamily real estate, as well as an overview of the Michigan Multifamily Market.


Notable Mention by Grand Rapids Business Journal.

With homeownership rates at the lowest point in more than 50 years, apartments are the focus for many developers nationwide.

The main issue with the apartment needs, however, is the high cost of construction, according to Scott Nurski and Craig Black, multifamily investment advisors at NAI Wisinski of West Michigan.

“Developers are building what economics will allow,” Nurski said. “Developers are building Class A product, because the cost of construction is so high, and you have to have high rent. If you need to have high rent, you need a high level of finish to attract those who will pay it.”

The majority of new apartment development is concentrated in downtown areas, including Grand Rapids, where cranes are popping up with more regularity. The cost of the market-rate apartments downtown are approximately $2 per square foot, meaning an 800-square-foot apartment will cost $1,600.

The supply of market rate housing in downtown Grand Rapids still is building to reach the pent-up demand of years without nearly any available housing, Black said.

“There’s all sorts of activity now, and it looks like, ‘Oh no, they’re going to overbuild,’” he said. “But when you have no supply and an ever-building demand, there’s a catching up that needs to occur. There was no reason to come downtown before, and as those reasons increase, people want to be here, and for those that can afford it, there’s inventory available. Eventually, however, we’ll see a more mature market.”

Developers also noticed the demand for cheaper living spaces, and the high construction costs means smaller spaces. Black said if renters are willing to give up space, they can have cheaper units downtown that fit paychecks.

Still, Black and Nurski expect development in downtown Grand Rapids to continue for two to three years before the market matures.

Demand for two-bedroom apartments already is softening, Nurski said, meaning more choices for one-bedroom apartments soon could be the focus for developers.

The drive for apartments coincides with the struggle to afford the more upscale apartments, Nurski said. People are putting off the purchase of their first home, largely because first-time homebuyers desire homes under the price of $200,000, and there is a lack of inventory for the price range, Nurski said.

“Many younger folks don’t have the wage growth, or they don’t have the employment stability they want before jumping into a home,” he said. “They’re not achieving the wages new grads were 15 years ago, and they want more flexibility in where their careers might take them.”

Nurski’s observation of stalling wage growth isn’t unfounded. The Economic Policy Institute released data last month showing a 2.6 percent year-over-year wage growth, while a target for nominal wages is between 3.5 and 4 percent to stay above the 2 percent inflation target.

The EPI said the rates are an indicator of a less than complete rebound from the Great Recession, and until rates begin to grow like they did prior to 2008, workers won’t see the benefits of the recovery.

Potential first-time homebuyers also could be scared off from what they saw nearly a decade ago, where parents and older siblings might have been negatively impacted by the Great Recession, Nurski said.

With prices high downtown, renters looking for a less expensive home must head to the suburbs, where rents are approximately 60 percent of those in the urban center, Black said.

Some of those suburban apartments have additional space to expand, which alleviates some of the high construction costs, as the land already is owned, so there’s a cash flow along with staff, marketing and utilities in place. Without starting from scratch, Nurski said the construction costs can be 70 percent of new costs.

The rising cost of apartments brings the industry up, but there is some detriment, Nurski said.

“Even people who aren’t doing much with their properties are still able to raise their rents and remain fully occupied,” he said.  “Folks living in those properties don’t have much of a choice when unit availability is so limited.

Nurski said NAI’s global economist said the recovery from the Great Recession is approximately 60 percent complete despite nearing the end of a full normal seven-year economic cycle.

The slow growth is a combination of multiple factors, including stringent lending requirements, lack of wage growth and housing cost growth.

“It is a slow chug,” Nurski said. “If housing costs continue to grow like they are, fewer people will be able to afford homes and will instead rent apartments, and that’s the risk of our market right now. Still, we need more gradient in rental pricing, outside of building for $2 a square foot rents. Grand Rapids has been looking for that, but it’s hard to make those numbers work.

“If they could do (Class) B at B prices, there is loads of demand for that. But demand is not the problem.

NAIWWM 2016 Mid-Year West Michigan Multifamily Market Forecast

While there are beginning to be concessions in some of the top U.S. apartment markets due to overbuilding, NAI remains optimistic about the West Michigan market.  Scott Nurski of NAI Wisinski discusses what he expects for the West Michigan Multifamily Market over the next 12 Months.


Low Vacancies Create Additional Value Add Opportunities for Class-B Assets

June 17, 2016 

We all know the infamous multifamily Class-B value add strategy: buy below market value, perform improvements and then raise rents to meet the market. But what happens when your rents reach market? How can you push the asset to perform even better?

In an up-market like the current one, in which vacancies are low and demand is high, you, as a landlord, have the pricing power. This means you can collect premiums above market rent for upgraded units. For example, some renters are willing to pay more for apartments with new countertops and nicer fixtures. In addition, installing these upgrades are often less disruptive and cheaper than the major redevelopment that a Class-B asset might initially require.

When seeking rent premiums, keep these tips in mind:

Choose upgrades wisely.

Which improvements will generate the biggest bang for your buck is somewhat dependent on sub-market.  Here are some of the amenities that are most demanded by today’s renters:

  • Granite Countertops
  • Stove Hoods
  • Stainless Steel Appliances
  • Brushed Steel Finishes
  • Hardwood Floors
  • Hardwood Cabinets
  • Fireplaces
  • In-unit Washers & Dryers
  • Open Floor Plans – some units offer the opportunity to open up the kitchen area to the rest of the unit, perhaps including a kitchen island to create separation from dining and living room areas


For best results, think about your ideal tenant and cater to his or her lifestyle expectations.

Don’t be cheap.

Some landlords looking for easy premiums resort to “cheap luxury.” A unit gets a fancy facelift, but lacks quality or durability. Inexpensive composite materials may look the part, but more discerning tenants can spot these in a heartbeat. Furthermore, these cheaper upgrades will wear out more quickly and come back to bite you when they require repairs or replacement.

Think classic.

What’s popular or unique today may be a turn-off tomorrow (shag carpet, anyone?). Your strategy might be to generate premiums by making some units very unique and stylish, but if you want to maintain continuity with your other units, choose improvements that will be durable and classic.

What is classic? According to Jeff Kayce, Vice President of Bozzuto Development, “Whatever interesting finish we do for one project, is not cool enough for the next. But rich, clean and unfussy finishes consistently do well.” Consider neutral paint colors like beige and gray for walls and white for trim, granite or marble countertops and hardwood cabinets and molding.

Don’t disrupt a good thing.

Keep in mind, if an asset is performing well in its respective market, there’s no need to push it too far. Don’t be excessive. Make sure renters can actually afford your premiums. Before installing major upgrades, test one unit at a time with different combinations of amenities to determine what tenants want and how much they are willing to pay.

Gain from the gap.

To avoid encroaching on Class-A rents, know the rent gap between classes in your market. Value-add projects are most successful when there’s a wide difference between the average rents of a new class-A apartment compared to a Class-B or Class-C unit.

You can’t turn a Class-B into a Class-A.

Finally, no matter what you do, a Class-B apartment will never be as desirable as a new Class-A unit in the same market. Therefore, if you require Class-A rents to support the expensive improvements you’ve made, you’ve gone too far. Be careful to weigh the cost of upgrades with the resulting premiums.

You’re probably thinking, “Wait, what about Class-C properties?” Well, for the most part, all of the above principles apply. However, due to the unchangeable aspects of some Class-C properties (functional obsolescence such as outdated architecture, baseboard hot water heating, 1-bathroom floor plans, etc.), a Class-C property tends to have more holding it back than a newer Class-B. Therefore, upgrades may not produce as much return, but will still be effective in generating premiums in a low-vacancy market. 

5 Pitfalls to Beware of When Buying Multifamily Properties

May 25, 2016 


Mineral Deposits in Water Heaters

You don’t need to know much about chemistry to understand the damage mineral deposits can do to your water heater. When hard water flows through the tank, the high heat causes minerals in the water to separate and sink to the bottom. Over time, this precipitate will buildup, reducing efficiency of the heater and weakening the steel. The most obvious sign of sediment buildup is a loud noise coming from the heater caused by steam bubbles erupting from under the sediment. Always thoroughly check water heaters before purchasing a property. If they need to be replaced, keep in mind a brand new tank can be easily fitted with a brass ball valve and hose adapter before it’s installed, saving you a lot of money and headaches. In fact, a sediment-free water heater can last 5-7 years longer than normal.

Polybutylene Plumbing 

Polybutylene is a form of plastic resin that was used extensively in water supply piping from 1978 until 1995, most commonly in underground water mains and interior distribution pipes. Although manufacturers have never admitted that polybutylene is flawed, numerous cases have been reported of defective pipes causing hundreds of millions of dollars in damage (not to mention, increased insurance premiums). It appears that oxidants in the water supply react with polybutylene and cause the pipes to become brittle. If a property you’re examining was built between 1978-1995, be sure to ask your inspector to check for polybutylene.

Water Woes

There’s almost nothing worse than finding out you can’t execute your development plans because of shallow water tables or existing drainage issues in the general area. Before you purchase, make sure you run a percolation test (AKA “perc test”) to determine whether the plot is suitable to build on, especially if you’re planning to build on raw land or add any expansions. In addition, contact the local government to review ordinances for retention and detention ponds that may fall on your property. Often, a large new development will require a new pond. 

Undisclosed Easements

Sometimes, through historically inaccurate records or a simple mistake, a title company fails to disclose an easement. These include sewer pipes, phone and cable lines, power lines, and dividing walls, to name a few. Undisclosed easements can create unforeseen headaches and, if you’re developing a new project, may halt your building plans in their tracks. Also, they may give third parties the rights to dig up your property for maintenance. In order to ensure you have accurate knowledge of the entire property, purchase an ALTA survey before buying. An ALTA survey is much more expansive than a regular boundary survey and will reveal all easements and possible encroachments.

Cable Chaos

When cable providers install wiring on commercial properties, they often sign a contract which allows them to retain ownership of the wires even if the property owner terminates the cable service. Thus, if you wish to hire another provider, you might be forced remove the old wires and/or install new ones, at a large expense to you. Before you fall into cable chaos, make sure you know who owns the rights to the wiring and who must eat the cost if they need to be removed.


National Multifamily Trends Impacting Grand Rapids Market

March 8, 2016

Is the influx of market rate apartment development in downtown Grand Rapids sustainable?  Before answering this question, let’s first take a look at demographic and development trends on a national level.

Demographic Trends

Demographic shifts continue to drive strong performance in the multifamily sector.  There are an additional 6 million people in the 24-34 year-old age range today versus the historical average.  The majority of this age range is comprised of the so-called “Millennial” generation.  This age cohort is typically the most prevalent renter pool of all age cohorts and is the largest contributor to new household formation.  68% of the Millennial generation are currently renting, either by choice (such as those seeking an “urban lifestyle”) or out of necessity (such as those who are burdened by student debt).[1]

There is a second demographic group that is also driving occupancy and rent growth in the multifamily sector, the Baby Boomer Generation (those born between 1945 and 1964).  The Baby Boomer generation is part of a growing group of “renters by choice”, who are financially stable and are choosing to free themselves of the headaches and obligations associated with home ownership.  Joining the Baby Boomers as “renters by choice” are professionals who are perhaps in a transient employment situation, or who are looking for a certain lifestyle offered by higher end and/or urban apartment properties.

Growth in Both Unit Supply and Rental Rates

These factors are helping to drive a new wave of development and additional unit supply.  In addition, due to the high cost of construction, the majority of development projects coming online have been comprised of Class A, and typically urban, product.  This is due to the fact that Class A, as well as urban product, tend to command rents that are high enough to support the cost of construction.  In fact, urban rental housing stock has increased by 19%, which is more than double the growth rate of suburban product on a national basis.

The rebuilding of urban centers has created a new demand dynamic.  While the rental rates that can be commanded for a given product class (in this case, “Class A” or luxury finish) have been a major factor supporting development of urban product, the associated resurgence of the downtown core has also created an appealing environment that offers an exciting lifestyle choice for Millennials, Baby Boomers and professionals alike.  Demand from all three groups has converged on the same product offering, thus supporting continued robust demand for urban units, tenant waiting lists for new projects, and historically impressive annual rental growth rates within the downtown submarkets.  To a lesser extent, this compelling rent rate vs. construction cost equation, coupled with the upscale lifestyle offering, has also created support for new construction of Class A, suburban apartment product.

Contrary to historical expectations, new unit supply is not slowing the annual rent growth of Class A product.  There are many high supply markets across the country that are showing continued absorption, and surprisingly, a simultaneous growth in rental rates.  This is a testament to the strength of the current tailwind provided by strong household formation, growth in the 24-34 year old cohort, and the advent the “renter by choice” phenomenon.  Interestingly enough, this same pattern is occurring in suburban submarkets that offer “urban-like” qualities, such as highly walkable communities that offer close employment and daily life conveniences.  Will these unit supply and rent growth patterns be sustainable forever?  Probably not.  Supply and demand will inevitably reach equilibrium, but this does not mean that demand will die altogether.

The Case for Sustainability

While these demographic and economic events have caused a logical surge in demand in both Class A and urban product, there is an evolving myth that the demand for urban product is a fad, mostly driven by the Millennial desire for hip urban living.  Furthermore, this demand is doomed to wither away as individuals within this cohort grow older, start a family and decide that the urban life is not convenient to the reality and demands associated with raising a family.  However, except for a very small “Moneyed Millennials” demographic group, the majority of Class A, luxury, urban product is not rented by Millennials, but rather is rented by downsizing Baby Boomers and professional “renters by choice”.  This tends to suggest that the revitalized urban environment is not just a fad, but is instead a welcome trend toward more vibrant and active downtown communities across the United States.

This bodes well for the amazingly rapid resurgence of the downtown core, and associated blossoming urban housing stock currently happening in Grand Rapids.  While the current new development trend does bring up questions regarding rental affordability within the downtown area, the increase in the number of downtown residents creates an undeniable benefit to the office, retail and entertainment components of the downtown core.  The synergy between these components makes for a more exciting environment for all who choose to spend time downtown.  What a great time to be living in West Michigan!

[1] Eye on the Apartment Market: Multifamily Dashboard. (2016, January). Panel Discussion at the Apartment Strategies Conference from the National Multifamily Housing Council Annual Meeting in Orlando, Florida.  

Case Study: Heartland Village Square Apartments (114 units)


The property had been operated as a senior independent living facility on a 40 year lease to a nursing facility organization.  The property was held in a trust by an elderly retired gentleman.  The lease was due to expire in around 45 days.  Due to a disagreement between the landlord (trust) and tenant (nursing operator), the tenant was completely uncooperative in providing financial operating data or operating assistance in transitioning management.  The owner wanted to sell, which made it very difficult to find a third party management company willing to take on 114 units for a 30-90 day assignment.


In order to market this property, the NAI Wisinski Multifamily Team had to produce a valuation within a week with no actual financials to work from.  In addition, a flooding issue related to nearby overdevelopment was causing recurring damage to 14 units.  Using our extensive database of property operating data, the NAI team was able to utilize benchmarking to create an income and expense statement that realistically reflected how the property should be operating as a market rate apartment community.  This allowed us to produce a defendable valuation of $5,250,000, assuming no deferred maintenance (flooding issue).  This represented a fair price that gave a buyer some room to create additional value.  In addition, this price provided the owner with a potential sale price that was much higher than the $3,300,000 valuation given by a competing multifamily broker.  We were aware that the owner was willing to take far less for the asset and that he was in a vulnerable position.  However, integrity and the client’s best interests come first.  Therefore, we did not take the easy way.  We decided to push for every dollar that the asset was really worth.

We also reached out to several property management companies who have the capability to handle a 114 unit property.  The challenges included taking over a large property that would come with no documentation or operating history and would need to be immediately restaffed on the first day.  The management company needed to be prepared to take the assignment within around a month.  In addition, the assignment may only last for 30-90 days, until a transfer of ownership occurred.  There was no guarantee that a new owner would be willing to retain management. In order to ensure a smooth continuation of operations, we had to pull a favor from a management group we had worked with in the past.

The recurring flooding issue and 14 down units created a serious potential objection for prospective buyers.  The NAI team decided to quickly quantify the problem in order to make it more palatable and understandable to buyers.  This approach prevents buyers from overestimating the cost of the remedy.  It also saves due diligence time and money for buyers and keeps more conservative buyers from walking away from the opportunity.  We were able to quickly bring in a reputable civil engineer, who was familiar with the county drain problem, and was able to come up with a structural solution and a cost estimate of $450,000.

Using our deep company resources, we were able to produce a comprehensive offering memorandum and both a physical and digital marketing campaign within less than a week.  We then immediately put the property on the market.  An email blast was quickly sent out to our extensive database of owners and buyers.  We also started to contact by phone the most likely prospects, which were identified due to our strong knowledge of the most active players in the market.  Within a matter of days, we had generated significant interest in the property, allowing us to set up two tour dates for the following week.  Through its entirety, the owner was able to observe the marketing process through the NAI Realtrac accountability web-based software.  This gave the owner tremendous peace of mind that the many issues at hand were being handled and resolved prior to the looming deadline at the end of the month.


During the two week marketing period, we were able to create competition for the asset and generate five good offers from strong, qualified prospects.  Using our strong negotiating skills, the property was put under contract with the highest bidder.  The contract was settled at the asking price of $5,250,000, minus the deferred maintenance of $450,000, for a final price of $4,800,000.  The out of state buyer flew in a team of people to conduct due diligence.  The property was under contract for a total of 7 days and closed the day before the nursing operator was to exit the premises.

The end result was an ecstatic seller, who could not believe how much the property sold for, nor how quickly the valuation, marketing, negotiating, and closing processes went.  The buyer was thrilled to be able to add to his existing Grand Rapids portfolio at a price that gave him the room to create additional value through property improvements and repositioning.


“Craig Black and Scott Nurski recently completed the sale of a 114 unit apartment complex for our office. We were very impressed with their performance. To start with, the Offering Memorandum which they prepared was very professionally done. The sale was very complex and presented many challenges, but the two of them did an outstanding job on presenting the property and then negotiating a sale in a very short time and at a very favorable price. I would not hesitate to recommend them.”

                                                                  Chuck Bloom,



What goes up, must go up?

[Notes from the Apartment Strategies Outlook Conference, National Multifamily Housing Council, January 19, 2016]

  • According to Trammel Crowe, even hot markets are leasing up at or faster than proforma. They have budgeted one month free rent in Houston, but are not offering concessions anywhere else in the country.
  • Cap rates and interest rates are not perfectly correlated.  Cap rates are compressing down toward the level of B/AA bonds at 6% for average cap rate vs 5.5% average bond rate.  These two asset classes are normally 140 basis points apart. Real estate is competing for global capital against other asset types. It is hard to think that cap rates can go lower, but we haven't seen the market let off yet.
  • Apartments are not discretionary asset type, since everyone needs housing. This dynamic tends to create a lower risk profile for multifamily when compared to other commercial asset types.
  • Many general investment funds are still under allocated to real estate. Foreign investors are looking at relative risk and US is good choice. Active foreign investors are often a sign of peak of market, however.
  • Values are stretched in multifamily, but have not gone too far, in contrast to some of the other commercial asset classes. Multifamily continues to be a relatively better choice. Some investors simply looking for capital preservation, rather than return.
  • Financing regulation is so conservative that it is helping to keep things from going off the rails. Lending is as conservative as it has ever been. Single family lending relies on one income stream, while a 100 unit multifamily, for example, relies on 100 household income streams. That's why default rates were so low on multifamily loans during the recession. Home ownership levels are as low as they have been since 1965.  Yet, contrary to logic, annual caps on agency (Fannie Mae and Freddie Mac) lending are keeping capital away from the less risky multifamily asset class.
  • Millennials like lifestyle and flexibility, while seeing no stigma in renting like older generations. They are waiting longer to marry and have kids, while 1/3 of Millennials are still at home or in school. These trends should support continued demand for multifamily housing.
  • The economy usually exhibits a 6 year bull and we already in year 6 or 7.  Strong demographic trends are favoring multifamily and suggest that fundamentals should remain positive for the next years.