Developers are on track to deliver a triple whammy to the downtown Minneapolis apartment market this year: three high-rise apartment towers that will bring nearly 800 units to a part of the city where renters already have plenty of choices.
“The market appears to be holding,” said Mary Bujold, president of Maxfield Research. “[But] I think most local developers are cautious.”
That caution translates into a bumper crop of creative amenities aimed at making these buildings stand out more than they already do.
The 14-story Ironclad, on S. Washington Avenue near the Mississippi River, is near a light-rail station and adjacent to the new Moxy Hotel, which will have a cloister garden.
At the 17-story City Club Minneapolis CBD on S. 10th Street, the focus will be on green living.
Both projects claim to have the largest exterior amenities in the city.
And at Rafter, a 26-story tower across the Mississippi River from downtown Minneapolis on E. Hennepin Avenue, there will be a “Makers Room” with work benches, community tools and a lounge.
Despite quiet jitters about the depth of demand, the rental market across the Twin Cities metro remains one of the healthiest in the nation.
After the addition of 1,286 new units last year, the average vacancy rate in downtown Minneapolis fell slightly from the previous quarter to 7.6 percent by the end of the year, though it was still the softest submarket in the metro last year, according to an annual report from Marquette Advisors.
Absorption during the year, which is the rate at which new units were occupied, slightly exceeded the previous year, the report said.
That’s why, by most measures, the Twin Cities has been a darling among major metros and outside investors and developers.
“Capital investment in the Twin Cities market shows no signs of slowing down, even against a softening,” Bujold said.
Typical lease-up for these high-rise properties is likely to be between 12 to 16 months, on average, she said.
Like with high-end homes that take longer to sell, demand for the largest units downtown lags the broader market.
A quarter of the penthouse units in downtown, which includes the North Loop and neighborhoods across the river, are vacant, according to the Marquette report.
A separate market study released late last week by Dougherty Mortgage, which tracks market-rate and income-restricted rental housing, said that downtown Minneapolis is poised to see a record 1,469 new units in nine buildings this year.
The units will be in buildings including the Vicinity in the Mill District, the Nordic in the North Loop and a pair of buildings near Marshall and Broadway in northeast Minneapolis.
Tom O’Neil, vice president of market development and author of the Dougherty report, said if economic conditions in the Twin Cities remain strong and apartment absorption stays at 4,000 units or above, the vacancy rate by the end of 2019 should stay below 3.5 percent across the metro.
O’Neil noted in the report that rent growth has moderated in the downtown submarket more recently, and he’s observed more regular use of concessions during the winter months due to seasonal slowdown and a larger number of new units available for rent.
At Rafter, the 26-story tower that’s being developed by M.A. Mortenson Co., leasing started at the beginning of February.
“It’s been going really well,” said Mortenson development manager Brent Webb.
The developer said Rafter stands out in what Webb said is a “very competitive” marketplace because it is a vertical neighborhood that honors the history and vibe of the neighborhood, a nationally renowned arts district with a working-class history that’s steeped in the trades.
“Our mantra has been [to] celebrate the community and explore how that translates into how the building looks and feels,” he said. “We’re hoping that resonates.”
Keith Wyman’s Concrete Pig designed and built the lobby desk, and a pair of married artists are creating a wire art sculpture for the lobby.
At the neighboring Nordhaus, a 20-story apartment tower that opened in 2017, there are several winter specials including a free month of rent for two- and three-bedroom and penthouse units, as well as six months free parking.
Lennar Multifamily’s plans to build a taller tower next door were scaled back early last year due to what the company said were rising construction costs. Instead, the company said it would build more affordable mid-rise buildings with even more units.
Meanwhile, Jonathan Holtzman, CEO and co-founder of City Club Apartments in the Central Business District, said he is trying to differentiate his project by catering to young professionals earning $45,000 to $65,000 a year.
“There are no other properties downtown that are as focused on this customer as we are,” Holtzman said. The bulk of the units are studios, convertibles and one-bedrooms, and it’s what he’s calling Minneapolis’ first wellness certified building.
“We have gone well beyond green,” he said. That means encouraging residents to use mass transit, ride sharing and autonomous cars, he said, so the building has very little dedicated parking.
Varun Kharbanda, vice president of operations for the firm that is developing the Ironclad, said there’s still deep demand for projects that are in active, walkable neighborhoods.
“People want to live in a community — next to the arts, sports and walkable parks,” he said. “People want quality and we will remain competitive by achieving this standard.”