Interest rates and changing investment patterns propel development
Housing developers have few if any options for city subsidies these days; the economy is in the doldrums, and state and local leaders face large-scale budget cuts, including those to core services from police and parks.
Yet new housing development plans are sizzling on the city’s near south side, including the Whittier and Stevens Square neighborhoods. Once worthless vacant land is a hot commodity. (See sidebar.)
Why here, why now?
Local developers and real estate experts weighed in, and here are their top seven reasons.
1. Inviting interest rates: This is the consensus number one reason for propelling development. With interest rates under 6 percent for a 30-year fixed mortgage, "people can own for what they are paying for rent," said Don Gerberding of Master Civil Engineering.
2. Changing investment patterns: A poor stock market showing may help housing development. With the market down, investors find the bond market more appealing, said Loren Brueggemann, vice president for development for Sherman Associates. That drives mortgage interest rates down.
"The more dollars that chase these bonds, the lower the coupon costs," he said. "That probably helps."
David Crockett of Crockett Associates represents several investors on the condos planned at 18th Street and 3rd Avenue South and is working on two other south Minneapolis projects.
"It was difficult to raise real estate development money three or four years ago when people were getting extraordinary returns on the stock market," he said.
3. The downtown draw: People have a strong interest in living downtown, and if they can’t afford it, living close — like Whittier or Stevens Square — is an affordable option, said Mary Bujold, president of Maxfield Research, which does housing market analysis for public agencies and private developers.
According to Bujold, development activity is happening north of downtown too, but not as much.
"It is easier in terms of finding [development] sites to move south out of downtown than it is moving north," Bujold said. "There is an existing residential base already built up. As you start to go north and northeast, you start to go into more commercial and industrial neighborhoods."
4. Pent-up demand: The city has seen population growth for the first time in decades. City leaders have talked for years about the need for more affordable housing.
Many of the for-sale units contemplated on the near-south side are on the affordable end of the market. The Lofts on Arts Avenue, for instance, sold at between $150,000 and $265,000. All the units in the proposed 74-unit condo development at 4th and Franklin avenues would likely sell for less than $200,000, said Gerberding of Master Civil Engineering.
"I don’t think the slow-down in the economy has affected the portion of the housing market I am working on — in the moderately-priced and affordable," said Crockett, whose proposed condos on East 18th Street would sell for between $180,000 and $330,00. "It certainly affects commercial. It should affect retail. It has affected the high-end housing in the suburbs."
Young professionals and dual-career families may not be able to afford Uptown or downtown, and see the near-south side as affordable, said Jim Dowds of Prima Land, who built eight homes in Whittier in the past two years and is now building two town homes in the Lyndale neighborhood.
The near-south-side neighborhoods in particular are predominantly rental, bolstering the market for townhomes and condos from those who now rent there and want to own, several interviewed said.
5. Added demand from upwardly mobile immigrants: Adding to home ownership demand are upwardly mobile immigrant families, Dowds said.
"The Asian, Hispanic and Somali
families are traditionally extended-family cultures," Dowds said. "They don’t want to live in Eden Prairie. When they want someone to babysit their kids, they want to walk down the street to the grandmother or aunt."
Immigrant families who can afford to buy tend to want to buy where they have family connections, in rental neighborhoods like Phillips and Whittier.
6. Neighborhood self-promotion: The Loring Park, Stevens Square and Whittier neighborhood groups collaborated with the Nicollet Avenue Business Association to develop a marketing plan in October 2001 — identifying development sites and potential reuses. More recently they took a group of developers on a trolley tour of the avenue.
Whittier used some of its Neighborhood Revitalization Program money to upgrade its stretch of Nicollet into Eat Street, promoting its restaurants.
Patrick Lamb, vice president of Legacy Management and Development Corp., said the trolley tour got him excited about the neighborhood. He attended a recent meeting on redeveloping the Ramar building into housing.
"Once something starts in a neighborhood, it engenders the next thing and the next thing," he said. "I think you are seeing that on the near south.
"Once the excitement starts going — and the community starts saying, ‘We’ve got to get this going; we’ve got to get things done’ — then developers say, ‘There are some opportunities here.’"
7. Reopening Nicollet Avenue: The Sherman Associates Nicollet Lake Commons project at Lake and Nicollet avenues could provide one of the biggest catalysts for redevelopment in the area, with its hundreds of housing units and reopening of Nicollet Avenue at Lake Street.
Brueggemann said his firm’s proposal likely helps spur other development interest.
"You open Nicollet Avenue and make that big connection to downtown," he said. "Nicollet is still a premier street in the city of Minneapolis. I think people are sensing that."
Jetmar Properties recently proposed building a four-story, 24-unit apartment building a few blocks west of Sherman’s planned development, 110-130 W. Lake St.
Boomlet or bustlet?
Not everyone is optimistic the housing boomlet will continue.
"I think we are entering into a bust cycle," Lamb said. "What you are seeing now are things that were on the drawing board or in planning a year or two ago."
Real estate lags behind the economy, he said. As budget shortfalls keep coming –and more money gets sucked out of the economy — he thinks it will hurt sources of affordable-housing funding like the U.S. Department of Housing and Urban
Development and the Minnesota Housing Finance Agency.
The affordable housing done in this city has a deep subsidy, Lamb said. Without the subsidy, "you can’t do affordable housing these days."