Apartment owners are busy spiffing up to keep pace with growing demand, while skirting the hurdles that come with building new.
With a Wi-Fi lounge, up-to-date fitness center and apartment units with espresso-finished cabinets, The Woods of Burnsville might seem like one of the new rental complexes springing up around the Twin Cities.
In reality, it’s a 1980s-era property undergoing an ambitious makeover — one of a growing number of obsolete rentals upgraded to satisfy the demand for trendy apartments that has spread to the suburbs.
With new complexes putting pressure on old ones to keep up, renters expecting more amenities, and investors getting in the game by buying older buildings and rehabbing them for half the cost of building new, the existing apartment stock is evolving. It’s especially true in communities such as Burnsville, an older, largely built-out suburb that doesn’t want to add more new rental housing.
Sales of apartment properties throughout the Twin Cities have climbed in the past couple of years, with about 50 sizable complexes changing hands since the start of 2012. Burnsville alone has seen four large apartment complexes sold in the past several months, including the 400-unit Woods of Burnsville.
Buying and renovating properties avoids hurdles newly built projects face in getting city approvals, not always easy in suburbs less comfortable than urban neighborhoods with high-density rental housing. Chanhassen’s City Council last month OK’d plans for a 155-unit apartment building, but only after it was altered because of vigorous opposition from nearby residents.
“The neighbors are never enthusiastic about rental housing going in by them. I don’t care if it’s the Taj Mahal,” said Mary Bujold, president of multifamily housing consultant Maxfield Research Inc.
“One of the things we look at in a community is the amount of new supply coming on line in the market,” said Girish Gehani, chief operating officer of Chicago-based Trilogy Real Estate Group, which has bought and renovated apartment complexes in Minnetonka and Woodbury. The company recently acquired the 375-unit Parkway Apartments in Eden Prairie, where new market-rate apartments have been proposed but none built in 10 years.
Communities typically welcome efforts to refresh their tired apartment complexes, recognizing there’s increased demand for upscale rentals.
“Minnetonka has a housing market that is aging. We obviously need a lot of reinvestment to keep our market fresh,” Community Development director Julie Wischnack said.
Wischnack said a community can benefit from increased market values when properties upgrade. Stratford Wood, a 278-unit complex in Minnetonka, saw the taxable value of its building increase by 50 percent in 2012, according to Hennepin County property records, after it was bought and renovated by Chicago-based Waterton Residential, the new owner of The Woods of Burnsville.
“The quality of a community’s housing is something employers look at when they’re evaluating a city,” said Molly Koivumaki, Eden Prairie’s manager of housing and community services.
Besides adding or improving common amenities such as clubhouses or fitness centers, the apartment upgrades typically involve spending $5,000 to $10,000 per unit. New appliances, countertops, bathroom vanities, cabinets, flooring and light fixtures are the norm.
“These buyers aren’t taking a C property and turning it into an A,” said Dan Trebil, a senior vice president of NorthMarq Capital, which has financed many of the deals. “It’s more like taking a B-minus and making it a B-plus.”
The new gas range and carpeting, updated fixtures and faux-granite countertops at Stratford Wood were enough to satisfy Melissa Barclay, who moved in last fall. Barclay, who moved from Arkansas, said she pays $895 a month for a large one-bedroom and a garage. “I absolutely think I’d be paying at least $1,000 for something this large if it were new,” she said.
Waterton has a similar game plan for rehabbing The Woods, although it will require building the fitness center from the ground up. Maxwell Peek, senior vice president for acquisitions, said plans also call for redoing the cedar and light brick facade of the six-building complex to “improve the look, bring it up to date,” he said.
A relative bargain