Apartment landlord Martin Kenny wheels his Jeep Cherokee into the drive of ING U.S. — soon to be Voya Financial — tucked away off Windsor’s Day Hill Road.
“This is what I wanted you to see,” says Kenny. Cruising the parking lot, the Wethersfield developer motions to a sea of vehicles, many of whose owners — young millenials and Gen-Xers and middle-aged empty-nesters — he deems potential tenants for Mallory Ridge, his latest multifamily development minutes away, in Bloomfield.
Kenny, who said he has erected 700 apartments in the Hartford area in the last decade, including downtown’s 100-unit Trumbull On The Park, has more multifamily projects planned or underway, including for downtown and in Glastonbury. He and other in- and out-of-state landlords are riding a cresting wave of what they say is a strong demand for more new or updated apartments throughout Connecticut. It is, some say, the region’s biggest torrent of new multi-family housing construction in decades.
The first apartments of Kenny’s 78-unit complex off Filley Road open next spring, with the entire development expected to be in lease-up by summer. Pre-leasing demand for its one- and two-bedroom models is strong, he said.
While Hartford savors the trend of office-to-apartment conversions downtown, many of its suburbs, too, are witnessing an explosion of new multifamily construction, acquisitions and renovations, industry observers say. Ditto the Fairfield and New Haven markets. In all, Connecticut communities issued permits to build or convert 1,131 multifamily units through August, up from 1,096 units permitted in the first eight months of 2012, according to census data compiled by the state Department of Economic and Community Development. For all of 2012, 2,077 multifamily permits were issued vs. 925 in 2011, and 1,210 in 2010.
Newer properties, higher rents
New and renovated apartments permit owners to charge rents a bit higher than the market average, experts say. That explains why dozens of older Hartford area apartment properties worth hundreds of millions have changed hands in recent years as new owners invest millions more to renovate units to entice career- and leisure-focused renters in their 20s and middle-aged tenants eager for a more relaxed lifestyle.
Better still, authorities say, occupancy levels for most of the better area apartments are high, meaning landlords can raise rents, now running $1.65 to $1.80 a square foot.
Out-of-state apartment landlords are flocking to Connecticut, lured by its inhabitants’ relative wealth and the availability of land on which to build, observers say.
According to New York economic researcher-forecaster Reis Inc., Connecticut’s apartment vacancy peaked at 6.2 percent in 2009, the same time the state, U.S. and global economy tanked.
As of the third quarter, amid a slow but steady local and national turnaround, Connecticut’s multifamily vacancy had fallen to 2.8 percent. The national vacancy average is close to 6 percent. Connecticut rents have risen nearly 10 percent to $1,010 a month currently from $921 in 2009, Reis said.
One of the nation’s biggest apartment owner-operators, The Solomon Organization of New Jersey, in late 2009 paid $19 million for West Hartford’s 174-unit Westgate luxury apartments on Farmington Avenue. Solomon’s $1 billion portfolio includes more than 10,000 luxury apartments and townhomes in Connecticut, New York, New Jersey and Pennsylvania.
At the time, the national economy had slipped, causing rents to fall, said Marshall Rosen, Solomon’s managing director. Two years later, Solomon bought the 265-unit former Meetinghouse Village Apartments, now Merritt Station, in Meriden. Both date to the early to mid-70s.
Time and rising demand for rentals drove Westgate’s rents that then averaged $1,300 monthly to $1,800, yet occupancy remains in the high 90-percent range, Rosen said. Merritt Station’s rents, too, have risen, while vacancies have fallen.
Rosen says many U.S. apartment markets are benefiting from the “hangover effect” of people renting not by necessity but by choice. Solomon is searching for more apartments to buy in Connecticut, he said.
“We like the market and where it’s going,” Rosen said. “We intend on growing our portfolio in Connecticut, particularly in central Connecticut.”
In Rocky Hill, seasoned New Jersey apartment landlord Continental Properties on Nov. 7 debuted the first 60 or so of the planned 144 units of Alterra-Rocky Hill, that town’s first new apartments since the mid-1980s. The complex cost $24 million, Continental’s principal said. Rents for its one- and two-bedroom units run from $1,365 to $1,555.
“Really, the need, we think, for modern rental housing made this the ideal spot for our first project in Connecticut,” Principal Howard Rappaport said.
Rappaport said Continental is pursuing a handful of other potential in-state multifamily projects.
There seems little concern thus far about the potential for apartment overbuilding, or that the rental market could collapse, burdened by the state’s and New England region’s slow economic recovery.
“We’re confident that won’t be the case,” Rappaport said. “There are too many barriers to entry into Connecticut.”
Prudent lenders
Jeanneen Griffin is a senior lending executive and commercial-realty team leader for First Niagara Bank, Alterra’s project lender. To shield against overbuilding, Green said her bank insists borrowers stake as much as 25 percent of their own “skin” into a project.
“Most lenders today will require a developer have a substantial amount of cash equity invested,” Griffin said.
Alterra is Rocky Hill’s first new apartments since mid-1980s, when the Cedar Hill apartments opened. Shortly after, the town rewrote its zoning regulations in a way that, until now, made it near impossible to build another, authorities say.
Alterra is situated off Brook Street, in an industrial quadrant, packed with distribution warehouses and technical parks. Alterra, too, is less than a mile east of the sprawling, 544-unit Century Hills Apartments.
Models for Alterra’s one- and two-bedroom units showcase the latest conveniences and touches, many of them recognizable from single-family dwellings and condos. Nine-foot ceilings and “T”-shaped entries give the illusion of spaciousness; vinyl flooring simulates wide, wood planks in halls, kitchens and dining areas. Rounding out amenities are granite countertops; full-tiled baths; walk-in closets, even in the smallest units; washers and dryers, among others.
Rappoport calls it the “Home Depot-Lowe’s” culture, referring to the home-improvement industry’s impact on the do-it-yourself ethos that has exposed several generations to a wide range of materials and finishes and design themes to create the ideal nest.
“The design of shelter notably has expanded tremendously,” he said. “So people have higher expectations and standards than they used to.”
Alterra also is among the latest apartments to make a big nod to the growing “green” awareness. Along with the latest energy-efficient construction and appliances, Alterra features one of the first on-site, electric-car charging stations in the state. It also lends bicycles to residents who would rather pedal to the store or for exercise.
In Bloomfield, the Mallory Ridge site is a beehive of earthmovers and hydraulic hoists lifting panels of sheetrock and pre-fabricated roof trusses to the upper levels of the four buildings.
Jutting between openings in unfinished walls and hopping over electric wire, Kenny points to framing for the fireplace and fitness room in the complex’s community center. Outside, workers clear soil from the base of what will be Mallory’s kidney-shaped pool.
Like Alterra, Mallory will have amenities aplenty: Walk-in closets; washers-dryers; a lavish community room with a fitness center, even a walking trail and outdoor stations for washing vehicles and pets. Rents have not been set.
Market-rate units
Central Connecticut has plenty of apartments, many of them tagged “affordable” to qualify tenants for state and federal rent subsidies. But what’s been missing, Kenny said, is more “market rate” units priced so they stay occupied yet generate enough cash flow to provide landlords with reasonable returns on their investments.
Before Mallory, Bloomfield’s last multifamily project was the 2004 opening of the 246-unit Hawthorne at Gillette Ridge luxury apartments that Cigna co-developed, adjacent its headquarters campus. Three years later, a Texas landlord paid a then central Connecticut record $213,000 per unit for the complex.
Last February, broker/developer James Walsh won town approval to build a 26-unit multifamily complex off Blue Hills Avenue, near The First Cathedral church. The 1,900-square-foot, 3 1/2-bath units would target “people who lost their homes but still have the income” to afford a higher-end rental, said Walsh, a broker with RE/MAX Central in Windsor. The unusually large units could be converted to condominiums, should the rental market reach saturation, he said.
Walsh also is the broker for the developers of the recently approved Villages at Poquonock in Windsor, near the Windsor Locks town line, consisting of 192 apartments and single-family houses and condos, he said. Windsor’s proposed Great Pond mixed-use development straddling Day Hill Road would add thousands more apartments in the coming decade.
Kenny, who is involved in an investment group readying to turn two long-vacant downtown buildings on Pearl Street into housing, says market research he paid for found there are some 60,000 jobs within a 10-mile radius of the intersection of Day Hill Road and Blue Hills Avenue.
Mallory Ridge is within three miles of the intersection, not far from where online retailer Amazon.com wants to open a 1.5 million-square-foot Windsor fulfillment center that would employ at least 300.
Kenny, too, is undaunted by any talk of possible overbuilding the apartment market. He points to the two years he says it took for Glastonbury to approve one of his projects.
“Do I believe in all the things and feel (Bloomfield) can absorb all these market-rate units?” he said. “Absolutely.”