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Sunday, 04 January 2015 21:00

Suburban multifamily market gains steam

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The LaCati Group of Grand Rapids plans to offer 237 new high-end apartment units at The Ridges of Cascade in Kentwood, located at the former site of the Centennial Country Club. The project was designed by Concept Design and is being built by CD Barnes Construction. The LaCati Group of Grand Rapids plans to offer 237 new high-end apartment units at The Ridges of Cascade in Kentwood, located at the former site of the Centennial Country Club. The project was designed by Concept Design and is being built by CD Barnes Construction. COURTESY PHOTO

As dozens of new market-rate multifamily units come online in the downtown Grand Rapids market and in the nearby neighborhoods, developers have also turned their attention to serving housing demand in the suburbs.

One of those developers seeking out opportunities in the suburbs is The LaCati Group LLC. The Grand Rapids-based firm recently completed phase one of The Ridges of Cascade project, a $30 million high-end luxury apartment complex being built at the site of the former Centennial Country Club.

Owner and President Chad Cassiday said the company aims to bring the feel of living in a Florida condominium development to the Kentwood suburb. By the spring of 2016, the developer aims to have 237 new units off Charlevoix Drive near 28th Street and I-96 that will have the feel of living in a $300,000 to 400,000 condominium, he said.

With rents ranging from $1,075 for a one-bedroom apartment to $2,175 for a three-bedroom unit, Cassiday said he expects a wide range of people to be interested in the development. Young professionals, empty-nesters and possibly people looking for a second home without having a large equity commitment are expected to be part of the community, he said.

“We believe the price point is slightly lower than the downtown market, but you get a lot more bang for your buck,” Cassiday told MiBiz. “You can be downtown in seven minutes and you get a larger apartment with a garage.”

The development includes clubhouse access and a fitness center, as well as a pool and hot tub. Concept Design of Grand Rapids served as architect on the project, which is being built by CD Barnes Construction.

“The Ridges is located in a market where it’s the first luxury, multifamily development in the suburban market. There’s a very limited supply of that. We think 237 units will be absorbed very quickly,” Cassiday said.

Out-of-state real estate investors appear to agree with Cassiday.

Chicago-based brokerage firm Triad Real Estate Partners specializes in multifamily, student and affordable housing. It also publishes quarterly reports on a number of Midwest markets, including West Michigan.

Ryan Tobias, one of three founding partners at Triad, observed that the development, while larger in scale than much of the new construction in downtown Grand Rapids, is fairly small when put against the larger supply of suburban multifamily housing.

“They’re really trying to capture the cream of the crop from the rental pool with the well-to-do young professionals and the empty-nesters,” Tobias said. “They are the type of renters everyone would like to have, and I think they’ll have great success with it because there is not a lot of competition in that space. Most of the higher-end stuff you’ll find in Grand Rapids is going to be downtown. There’s not a lot in the suburbs.

“I think they are looking to prove that those tenants exist and the rents they are looking to charge are highly attainable.”

The Ridges of Cascade also represents one of the first new multifamily construction projects in suburban West Michigan markets in some time, sources said.

While there is some new construction for multifamily housing projects across the region, developers still find that it makes sense to invest in renovating aging complexes largely because of timing issues and broader macroeconomic trends, Tobias said.

For projects involving existing complexes, investors have started to emphasize adding amenities and providing other value for tenants — a parallel to numerous commercial office projects in downtown Grand Rapids where developers are investing in upgrades to attract new companies.

Indeed, the same could also be said for most downtown multifamily projects. For example, Rockford Construction Co. Inc. is converting the former Morton hotel building that had most recently been used as low-income housing into modern, market-rate apartments. The same is true for 616 Development LLC, which is renovating the former Sakner Products building at 820 Monroe Street just north of downtown Grand Rapids into 85 market-rate apartment units.

“We hear all the time that investors love to buy what is considered a C property in an A location,” Tobias said. “It’s something they can get into, spend the money on and really improve and see fairly dramatic increases in rent.”

Elsewhere, Grand Rapids real estate firm Trillium Ventures MSV LLC raised about $3.5 million in early December for improvements and upgrades at four of its multifamily properties around West Michigan, according to a recent filing.

Trillium partner Dan Meyering told MiBiz the company plans to acquire an additional suburban multifamily property very soon, but he declined to identify the project. The firm’s strategy is to buy existing properties that require some work and then make the necessary capital improvements, particularly for the interiors, he said.

Grand Rapids-based Loquidity LLC is executing a similar value-add strategy, albeit in a different manner. As MiBiz previously reported, Loquidity — a crowdfunding portal launched in June — seeks to pool investors’ capital to acquire multifamily properties and fund capital improvements.

Loquidity cofounder and CEO Jesse Clem said that the portal wants to focus on improvements to existing housing complexes largely because the cost to upgrade is significantly less than the cost of new construction.

Typically, new construction with the kind of amenities Clem would like to offer would cost approximately $70,000 per unit. With existing complexes, the work can be done for about $40,000 per unit, he said.

Additionally, the current lending environment is such that banks and institutional investors are quite bullish on multifamily projects, both urban and suburban, said Tobias of Triad.

The Grand Rapids-Wyoming MSA is currently at 98 percent occupancy for multifamily units, a rate that’s expected to continue throughout 2015 as rents increase from 3 percent to 4 percent, according to Triad’s most recent market research report.

The important part of acquiring existing multi-family properties, Clem said, is to stay current on amenities and constantly evaluate the market and changing tenant demographics.

“You have to keep re-evaluating the marketplace,” Clem said. “If you stay stagnant, you are going to get expired housing.”

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