Few multifamily developers have been as active in the Twin Cities market during the recent building boom as Minneapolis-based CPM Cos., founded by principals Daniel Oberpriller and Nick Walton.
Founded in 2005 as a property management firm focused on student housing around the University of Minnesota, CPM has grown along with the apartment market, branching out to also design and construct their own new buildings. After doing their first such deal in 2009, CPM this year will deliver up to $70 million worth of development and about 200 units, including Chroma, a 70-unit complex at 113 E. 26th St.
In 2017, CPM will complete such projects as Revel, a mixed-use development in Uptown on the former Cheapo Records site; Red 44, a new apartment project in Rochester; Spectrum, a 118-unit building in the Marcy Holmes neighborhood; and a Doubletree by Hilton hotel near the U. The firm’s newest direction is mixed-income housing. Oberpriller and Walton said they hope to break ground next year on the first phase of a 246-unit project in St. Paul called the Lexington Station Apartments, in which they have partnered with city officials to provide much-needed affordable workforce housing.
The pair this week shared their views on the quickly evolving Twin Cities multifamily market. Some excerpts:
Q: How as the market changed in the last 12 months?
Walton: The easiest way to make a budget look possible has been to have high rents. Along with a sharp demand created by a lack of supply, that’s what was driving so many of these luxury apartment deals. While they have been pretty well received, it just feels like there has been a lot them.
About 14 months ago, we really started looking at how we can focus on urban infill projects, 45 to 125 units, not 200 to 300 units like some of the big stuff we’ve done in the past, but a sweet spot of about 70 to 90 units in key urban areas — key corners, transit corridors that have a demand where you can put in a nice, architecturally designed project, but it doesn’t have to be the top rents and it’s not so large that you have to worry about if you’re going to be able to fill it as the market starts to saturate a little bit.
Oberpriller: We’re trying to be real conscious of being a little bit lower price-point, and not as big size-wise. Chroma is exactly that — 70 units. We just started leasing and it’s off to a really nice start.
Q: Do you feel the multifamily market is cooling off?
Walton: What we found is, for example, when we opened some of our earlier luxury buildings, we’d be 50- to 60-percent pre-leased when we opened, but with some of our more recent deliveries, we opened at 25-percent pre-leased. It used to take us three months to fill a building, now it’s taking us six to seven months.
So all of our buildings are filling, but you can just feel it and you can see the math — it’s slowing down. It’s not so overly saturated that you can’t build anymore, but it’s slower, so we’re looking at the trend and we’re asking, “What’s the somewhat safer play?”
Oberpriller: Let’s face it, real estate is still location-based. People want to live where people want to live, and landowners are taking advantage by really hiking up prices. We paid a lot more for that Cheapo Records site than the Chroma site, although they’re the same size. Construction costs are going up, labor costs are going up, materials, too. That’s another problem that we’re seeing right now.
Q: How are you coping with these costs?
Walton: Our strategy is we want to stay urban rather than going suburban as some others are doing as a way of dealing with higher land costs, but maybe get just off the center of the bull’s-eye a little bit. You can do that and still be on a transit corridor, still be on a corner, and the land prices are significantly lower.
Don Jacobson is a freelance writer based in St. Paul. He is the former editor of the Minneapolis-St. Paul Real Estate Journal.