Apartments drive surge in building across Twin Cities

Twin Cities builders are in the midst of their best October in nearly a decade, as developers ramp up apartment construction and housing inventories fall.

During the past month, builders were issued 409 permits to build 1,312 units, a 42 percent increase in permits and a 247 percent increase in units, mostly new rental apartments, according to the Builders Association of the Twin Cities (BATC).

The report comes in the wake of new data this week from the Minnesota Association of Realtors (MAR) that showed pending sales remaining stable even as the traditional warm-weather buying season fades.

While confidence is building that a recovery is underway, construction activity and home sales remain well below historical averages. Still, experts are optimistic.

"The Twin Cities is positioned even better than many metropolitan areas, with lower unemployment, higher job growth and rising sale prices," said Curt Christensen, BATC president and owner of Lee Lyn Construction. "Our goal now is to sustain the momentum into the new year."

A shortage of rental housing and a dwindling supply of for-sale listings is driving the recovery for builders and developers. Throughout the state, the number of new listings on the market was down more than 10 percent, according to MAR.

Closings were down as well, falling nearly 6 percent in the first annual monthly decline in several months. Pending sales, an indication of future closings, were down just 1.6 percent.

That report, which tracks sales activity in all corners of the state, follows one from the Minneapolis Area Association of Realtors that showed sales activity in the 13-county metro area continuing to increase by double digits even as buyers struggle to find suitable listings.

Agents say multiple offers are becoming increasingly common on listings in good condition and in desirable locations, especially the Twin Cities and inner-ring suburbs.

"The market is very active right now, and buyers are ready to buy," said Michael Sharp, a ReMax sales agent with an office along the Mississippi River across from downtown Minneapolis. "It feels like the old days of real estate. Just finding the inventory is the challenge."

The market is still struggling to work its way through a backlog of foreclosure listings, which continue to put downward pressure on prices. But slowly, quarter-by-quarter, the foreclosure rate is falling.

CoreLogic said Thursday that during August the foreclosure rate in the metro fell to 1.62 percent, a 0.47 point decline from last year. Mortgage delinquencies are down, too.

With the duration of the recovery still in question, many would-be buyers are instead renting. And that's caused the average vacancy rate in the Twin Cities to remain near historic lows.

Developers are stepping up to the plate with thousands of new apartments. Throughout the metro, rental apartments have represented 52 percent of all planned units.

October was different. Because five new multifamily buildings were permitted for the month, apartments and other attached housing represented three-quarters of all units. But single-family construction was up as well, rising 46 percent.

Among the thousands of new rental units planned for the metro are three luxury apartment towers. One of those is expected to start construction immediately near Loring Park on the south edge of downtown Minneapolis.

David Carlins, president of Magellan Development in Chicago, said the company closed on its construction loan Thursday to build a $100 million-plus, 36-story tower with a curved glass curtain wall and retail space on the lower levels. City Council Member Lisa Goodman praised the project. "What a great opportunity to add housing to the Loring Park neighborhood downtown," she said. "Just at a time the vacancy rate is at an all-time low."

Jim Buchta • 612-673-7376