Avalon Bay is developing the Avalon Orchards apartment complex in Marlborough.
If you build it, they will come – eventually.
In essence, that appears to be the philosophy multifamily developers are embracing amidst New England’s lingering economic slowdown. Even facing eroding rental rates and higher vacancies, the nation’s leading multifamily players insist they are as bullish as ever on the region’s rental market and are proving their devotion by continuing to pursue development opportunities in numerous communities.
The Greater Boston area is definitely a target for us, said Edward Geraghty, president of the eastern division of Equity Residential Properties Trust. It still has good dynamics for strong long-term growth.
Equity is currently constructing 136 apartments at Marina Bay in Quincy, and plans to break ground on two more multifamily developments in the spring, a 192-unit project in Waltham and 174 units in Haverhill. Already under way with more than 1,000 units in such communities as Marlborough, Westborough and Wilmington, Avalon Bay is pursuing a 300-unit plan in Newton. JPI of Texas, meanwhile, has a slew of sites in various stages of planning or construction throughout the region.
JPI principal Andrew Kaye said his firm feels New England has the correct demographics and enough restrictions to new supply to make the area a safe investment bet for the foreseeable future. Particularly given the time it takes to acquire, permit and build a multifamily development locally, Kaye said, cyclical changes in the economy cannot disrupt a company’s outlook.
The market fundamentals are not going away, he said. Market performance comes and goes, but there is inherent stability to this region due to limited supply and reasonable demand … It’s a great place to invest.
JPI is set to break ground this week on 330 units in Providence, R.I. It is presently in construction with 274 units in Marlborough, 260 in Salem and another 205 in Woburn. Throughout its eastern region, which includes New Jersey and New York, JPI has more than 2,500 additional units in the pipeline, about half of which are located in Massachusetts.
‘An Equilibrium’
Economist Shiawee Yang said vacancies in Greater Boston will increase to about 4.4 percent over the near term, while rent inflation for the area’s apartments has slowed to 4 percent after reaching 6.7 percent in 2000. It should drop even more in 2002 to 3.5 percent, she said, but noted that is still better than most of the country. Nationally, Yang predicts rent inflation will average 2.8 percent between now and next year.
Both Yang and Kaye said they believe the easing of rents and higher vacancies could actually be helpful for the area, maintaining that conditions were getting too overheated during 2000. Rates will not plunge to any level that could be damaging for developers, Yang said, maintaining that population increases and stronger employment ultimately will bolster the sector.
My sense is the market is going more towards an equilibrium than an undersupplied market where development companies have big windfalls, said Yang, a senior economic consultant with Torto Wheaton Research. Those years are not coming back for some time, but it will still be a very healthy market.
One phenomenon that could actually help Greater Boston over the near term is an influx of students to local colleges. That typically occurs in a recession, said Yang, who is also a college professor. In that regard, she predicted that apartments within Route 128 will fare especially well.
I guess this year, location, location, location will become one of the new building rules again, Yang said. In the past few years, it was price, price, price, but now if you do not plan strategically, you might not do as well.
Geraghty agreed there could be increased demand from the student population, but added that Equity Residential is more interested in Massachusetts due to its resilient economy and the challenges of adding competing supply.
Apartment occupancy levels for Greater Boston should begin to flatten out this month after dropping from about 98 to 95 percent, Geraghty estimated, adding that rental concessions such as free rent are becoming more in vogue, as are efforts at tenant retention. Overall, however, he did say conditions will be sluggish in the near term. Part of that is because rental activity slows late in the year, Geraghty said, although he added that the downturn occurred earlier this time, most likely due to the terrorist attacks. In any event, Equity is bracing for a challenging 2002.
It will clearly be a soft year for everybody in 2002 in terms of things like rental growth, he said. It will be slow, but 2003 should probably be a decent year.
For his part, Kaye said he anticipates the market will begin to improve by the third quarter of next year. In the meantime, JPI will continue to get projects in the pipeline permitted and under construction in hopes of hitting the next upswing. One of the larger ventures is located in Bellingham, where JPI is hoping to develop a 300-unit apartment complex near Interstate 495. The company is currently negotiating with town officials on the complex.
