Rochester is in the midst of an apartment boom

A wave of new apartments opened in Rochester last year, and even more are planned this year with both suburban and downtown projects in the development pipeline.

It's unclear whether the surge is just a normal upturn in the Rochester market's building cycle or if it's being spurred by the Mayo Clinic's effort, with local and state help, for expansion. That development is called Destination Medical Center and has a goal to add 45,000 new jobs over 20 years to the city. Some apartment developers are specifically mentioning the Mayo's expansion as a reason for investing in the market.

The city's surge in new multifamily units — while small in numbers compared to the apartment-building binge in the Twin Cities — is impressive for sheer magnitude.

After adding an average of just 120 new multifamily units per year between 2011 and 2014, the city's total of new units spiked to 1,156 in 2015, according to city building permit information. The new apartments added some $142 million in real estate valuation to the city, doubling the $72 million added via new single-family homes, the records showed.

And a healthy supply of new projects are on tap in 2016, including some of the biggest ever seen in Rochester. Here's a sampling:

• Maine Heights Apartments. With a maximum of 359 units, the effort from Minot, N.D.-based Rubicon Capital is slated for 13 acres in southeast Rochester on property owned by Mills Fleet Farm near the 48th St. SE. exit from Hwy. 52. The site plans show six three-story buildings.

• The Badger Hills Apartments. Preliminary plans filed last month by IRET Properties, also of Minot, call for 404 new units to be built in two phases in quickly developing northwest Rochester. The 242-unit first phase is a four-story building over underground parking.

• The Buckeye. The Stencil Group is also making a play in downtown Rochester, where it has won approval for The Buckeye, a 92-unit mixed-use redevelopment with 2,000 square feet of first-floor retail. It will be on the site of the Buckeye Liquor Store and adjacent to the Government Center.

• 501 on First. Also downtown, developer Mark Kramer of New Hampton, Iowa, will be opening an 84-unit, mixed-use project with first-floor commercial after the effort won $1.7 million in tax increment financing to replace a blighted property.

The apartment surge is coming when Rochester's multifamily housing market is extremely tight. In August, the citywide vacancy rate for market-rate apartments was a minuscule 3 percent and in newer buildings it was only 1 percent, according to Twin Cities-based Maxfield Research. The analysts found enough demand to justify more than 7,000 new apartments in Olmsted County through 2030.

Gary Smith, president of Rochester Area Economic Development Inc., said he chalked the building spree up mainly to cyclical multifamily real estate patterns.

"It's hard to say how much of it is due to the Destination Medical Center plan," he said. "DMC could be playing a part in it, but mostly I think it's just a function of the tight supply of rental housing we have now and a natural market reaction, especially downtown, where you're seeing a bigger demand from young renters."

"Regardless of whether and how it takes shape, at best, it's a huge boost to the market and, at worst, it's neutral," he said. "This creates a positive, asymmetric risk from an investment perspective so long as your investment is based on current conditions and not future 'blue sky' assumptions."

Don Jacobson is a freelance writer based in St. Paul. He is the former editor of the Minneapolis/St. Paul Real Estate Journal.