Paul Sween, Principal at Dominium Development and Acquisition, recently offered comments on three Midwest markets.
Minneapolis/St. Paul: The Twin Cities tends to be stable without the high peaks and low troughs of other markets, which is attractive to potential lenders. In Q3 2009, its average vacancy of 6.4 percent was below the national average (7.8). It benefits from its diversified economic base, including medical, technology and retail, and is home to 20 Fortune 500 companies. It has not produced opportune low-trough market-entrance opportunities, as Denver and Atlanta have. The Twin Cities market experiences an overall lower transaction volume compared with coastal markets (especially in 2008-09) and typically does not achieve the maximum Section 42 rents at an affordable property outside of the core urban area, as is possible in some larger markets.
Dominium’s portfolio consists of 41 communities totaling 4,586 units. The outlook appears flat as the Twin Cities’ NOI grew by just 3 percent in 2009 over 2008.
St. Louis: Much like Minneapolis/St. Paul, St. Louis is stable, and it is also very populated with large banking offices, thereby creating appetite for those firms to invest capital nearby. The city offers many different tax-credit programs for historic and affordable housing developers, encouraging development or rehabilitation. St. Louis also provides the opportunity to redevelop historic buildings in the downtown market. It has few low-trough market-entrance opportunities and recently has seen far fewer transactions compared with historic norms.
Dominium’s portfolio consists of five communities totaling 521 units. The outlook appears stable as St. Louis’ NOI grew by just 3 percent in 2009 over 2008.
Milwaukee: Congruent with other Midwestern markets, Milwaukee has weathered the recession much better than high-growth markets. There is sufficient banking presence in Milwaukee to keep a steady stream of capital flowing. Unlike Detroit, which has an economy based heavily on the automobile sector, Milwaukee is not overly reliant on one industry. Furthermore, as markets begin to rebound, Milwaukee will not be in the first tier to attract equity, as the initial equity generated will first flow into major markets such as New York. Milwaukee experiences an overall lower transaction volume compared with larger East and West Coast markets.
Dominium’s portfolio consists of five properties totaling 333 units. Its outlook appears fairly flat as Dominium experienced 2 percent growth in NOI in 2009 over 2008.