The apartment market is flourishing in Clark County, with contractors scrambling to finish new units and developers working feverishly to get new projects off the ground.
Countywide, more than 1,360 new apartment units are newly completed, under construction or going through the application process. There’s no question of demand: the vacancy rate for the county’s approximately 40,000 apartment units is less than 3 percent, the lowest in years. That demand has helped drive up rents by as much as 10 percent over the past three years.
The construction trend is carefully timed to meet that surge of demand and to provide the best return on investment for those who will own the properties long term. Experts say much of the rush is tied to an uptick in population and a generation of young adults who are finally landing jobs and striking out on their own. A greater percentage of those now seeking housing are locked out of homeownership as wages have flattened out or declined.
Clark County’s population increased by 3.2 percent to 438,287 in 2012, compared to 2008, according to the U.S. Census Bureau’s American Community Survey. The same four-year period saw the median household income in Clark County fall 11.5 percent from $62,956 in 2008 to $55,719 in 2012.
“The (homeownership) market is coming back, but it’s still out of reach for the first-time buyers,” said Jordan Carter, a vice president and multifamily property broker with Kidder Mathews in Portland.
The Census Bureau reported this week the nation’s third quarter homeownership rate fell to 65.3 percent, its lowest level in 18 years, according to the Associated Press. The percentage of people who owned homes peaked at 69.2 during the second and fourth quarters of 2004, although economists say housing’s recovery is still on track.
Those numbers make a clear argument for apartment construction. But as with any real estate investment, timing is everything.
Apartment complexes are built with short-term construction loans and generally must be completed and stabilized, or leased up, before the owner can access a permanent, 30- or 40-year mortgage, said Charlie Kleier, principal broker and a multifamily investment specialist with the Vancouver office of NAI Norris Beggs & Simpson.
The interest rates on those commercial loans are enticingly low for now, but are expected to rise in 2014. “The goal of a lot of people right now is to get their building built and filled sometime in the next six months before the interest rates are perceived to go up,” Kleier said.
Ellie Kassab, developer of the $16 million, 96-unit Prestige Plaza in downtown Vancouver, seems to have hit the timing just right. He expects to open the first of the project’s two buildings in January. He and others say the rush of development is fueled in large part by job prospects that are pushing the millennial generation — in their 20s and 30s — out of the family home.
“When the job rates improve, the kids don’t want to live with mom and dad. They want to move out,” Kassab said.
In addition to Prestige Plaza, the flurry of Vancouver apartment activity includes:
• The 418-unit Reserve at Columbia Tech Center with three out of four phases completed and the fourth under construction at Southeast 177th Avenue near First Street.
• A $32 million proposed six-story apartment building called The Uptown, planned to feature 166 apartment units, 150 underground parking spaces and ground-floor retail space in downtown Vancouver.
• The 134th Street Lofts, a $22 million complex planned to include 120 units for a site just off Interstate 205 in the Salmon Creek area.
• The Columbia Tech Center Lofts, a 90-unit complex planned as a four-story building at Southeast Mill Plain Boulevard near 177th Avenue.
• Westridge Lofts, a $20 million 104-unit midrise to be built off Southeast 192nd Avenue and 20th Street.
• The First Street Apartments, a 152-unit affordable housing project being developed by the Vancouver Housing Authority off Southeast First Street.
• Overlook Park Apartments, a 154-unit development of 16 buildings on Northeast 112th Avenue and 22nd Street.
• A 60-unit apartment development of seven two-story structures and one smaller building planned at Northeast 112th Avenue and 18th Street.
For some developers, the projects will “pencil out,” commanding enough rent to cover the mortgage and generate profit. Others could stall as an increasing number of units come online. There are sure-fire signs of danger for investors, according to experts who say apartment development typically follows a “boom and bust” cycle.
“The things to watch for are when vacancy rates creep up, rates stabilize and property managers have to offer greater incentives to tenants to get them to sign a lease. Those are the things that you see,” said Glenn Crellin, associate director of research at the University of Washington’s Runstad Center for Real Estate Studies in Seattle.
Despite the gush of new projects, Kleier doesn’t expect 1,360 units to overwhelm the local market, which he said has experienced very little apartment construction over the past decade and now faces a shortage of sites zoned for multifamily residential development.
“That’s going to make it difficult for this market to be overbuilt, so I’m not concerned,” he said.