The ugly ducklings of the Twin Cities rental market are turning into swans.

Investors are snapping up vintage apartment buildings in first- and second-ring suburbs and renovating them into upscale housing.

As one prominent developer explained his strategy to a Brooklyn Center housing task force: “Get the Caribou crowd in, and get the Jerry Springer crowd out.”

Dozens of metro-area apartment complexes built from the 1960s to the ’80s have changed hands in recent years. Properties that often fell into decline or even squalor as later developments leapfrogged them are now being rediscovered by younger renters who want to live close to the urban core.

With a coat of paint, granite countertops and stainless appliances — maybe even a fitness center — the refurbished properties can command higher rents and attract a different clientele.

And much of the action is being driven by large, institutional investors from outside Minnesota, local brokers and analysts said.

“We’re seeing a lot of new capital that’s coming into Minneapolis,” said Keith Collins, senior vice present and head of the multifamily housing group at CBRE, a commercial broker. “And right now, the sweet spot is the value add.”

Collins said that investors were hunting the first-ring suburbs for Class B and C apartment properties — complexes built within the past 20 to 50 years, with dated amenities and showing their age — “as great opportunities to go in and renovate those units.”

The formula is simple, said Matt Mullins, vice president of Maxfield Research and Consulting: “Remodel, repurpose and bring it up a notch. You go in, spend maybe $20,000 per unit on upgrades and increase the rental flow.”

Marketing to millennials

Several factors are behind the trend, analysts and development officials said. But the key is the emergence of the millennial generation — roughly ages 20 to 35 — as the largest demographic group in the Twin Cities.

There are about 770,000 millennials living in the metro area now, compared with about 700,000 baby boomers. Often burdened with student debt, millennials are more likely to rent than buy. Sales to first-time home buyers in the Twin Cities are about 25 percent below the typical level right now, Mullins said.

And while much has been written about the boom in upscale apartment construction in city neighborhoods like Uptown in Minneapolis, not everyone can afford to pay $2,000 to $3,000 a month for a new luxury apartment.

“There’s this middle price point that nobody is really able to meet with a new product,” said Colleen Carey, president of the Cornerstone Group. “There is a pent-up demand for that middle-class product and it hasn’t been delivered.

“It’s more manageable to buy a building built in the ’60s and spend some money fixing it up.”

Cheap housing disappearing

There’s a term in the development world for the kind of apartment building that’s being sold and renovated: “naturally affordable housing.” As these buildings move upscale, lower-income residents often are pushed out.

Dana Chatman, 52, worked for years as a pants presser at a formalwear company but now gets by on $842 a month in disability payments. She’s lived for six years at Meadowbrook Manor, the granddaddy of big apartment developments in the Twin Cities.

When it was built in 1953, Meadowbrook Manor was on the fringe of the metro area. Now its location on Excelsior Boulevard in St. Louis Park is considered an easy hop to Uptown and the lakes district of south Minneapolis.

The 551-unit complex was sold earlier this year, and the new owner is raising rents while making plans for a renovation that could include such niceties as a fitness center and swimming pool.

Chatman and her neighbors “have just been crying together, because we don’t know where we’re going,” she said.

Lake Pointe in Brooklyn Center, a 310-unit development built in 1969, was sold three years ago and then renovated by its new owner. The upgrades came with a 20 percent to 30 percent rent increase, said a tenant of more than 20 years who declined to give his last name because he feared the owners might not renew his lease.

“A lot of people had to leave. They couldn’t afford it,” said the tenant, identified only as Richard — adding that some of the tenants were “problem people” that the complex was better off without.

Cities happy with upgrades

Many of the newly upgraded properties are simply being returned to their original character, said Kim Berggren, director of community development in Brooklyn Park. When first built they were attractive places to live, and that’s what they’re becoming again, she said.

“It usually takes a change of ownership to make that happen,” Berggren said.

While city officials worry about the loss of affordable housing options, they’re also happy to see rundown properties fixed up.

“These rental properties are getting reinvestment, and it’s needed,” she said.

Developers and housing officials hold out hope that the market will turn its attention to building more entry-level rental housing — what the industry calls “workforce housing.”

“I think there is an opportunity to figure out a way to add more stock to help that segment of the rental market,” Collins said. “There is a niche there.”

But it’s tough to get investors to put their money into new non-luxury apartment buildings, Carey said.

She tried to put together a financing deal for a Richfield development that would have included some affordable units. The project, Lyndale Gardens, will begin construction later this year — as an entirely market-rate complex.