The Minneapolis and St. Paul Metro Area has experienced strong growth in new apartments over the past several years. Marcus Millichap, Q3 2015 Multifamily Apartment Research, reports that in 2014 developers added 6,000 rental units and in 2015 the number is anticipated to be around 5,000, increasing the apartment stock by 1.9%. However, it also reports:
By vintage, vacancy is tightest among properties constructed before 1970 at 1.7 percent. Many of these older buildings are located in the more sought after neighborhoods of the metro, have desired architectural features and offer more affordable rents than newer properties.
The opportunity existing in the current marketplace has been the acquisition and remodeling of well-located vintage apartment buildings. A particular niche business of Flagship Bank Minnesota, Brian Wagner and our team of lenders have years of experience in financing the acquisition and renovation of duplex, triplex, quad, and 5+ unit apartment complexes in the Minneapolis and St. Paul Metro Area, including particular experience in projects in student housing renovation projects.
What are the items to consider as you are reviewing your next project?
As you look to acquire and reposition a particular property, it is important to have strong market knowledge and diligence on rental rates for comparative remodeled properties. Questions to ask:
- What are the average rental rates for comparable properties with similar unit configurations?
- What are the building attributes and finishings on those comparables?
- Who are the targeted rental tenants in your building and competing apartment buildings?
- What is the expected increase in rents on each turned over unit?
Secondly, it is very important to understand both the scope and the timing of improvements to the project.
- How firm are your construction estimates? Fixed cost project, cost plus project for more extensive repositioning construction?
- Do you have a plan to manage the cost of the renovation or are you using innovative techniques to improve the look while minimizing the expense?
- What experience and history do you have in other projects and how does this compare to the proposed project?
- Have you worked with or do you know someone who has worked with the contractor(s) performing the work?
What financing options can an apartment operator expect?
Generally speaking, Flagship Bank Minnesota and other banking partners will expect cash down payment of between 20% to 25% on any acquisition and construction project in addition to the closing costs. The term will usually be 12 months during the renovation and reposition phase but can be longer for more complex and larger projects. Interest rates are underwritten based on market variables and individual applicants. Learn more in our Guide to Investment Real Estate.
As a relationship bank, we tailor our loans to our borrowers and can creatively customize a proposal. Even more beneficial is after we have completed one deal for your company, the efficiency and transparency of each additional project improves. It's why construction projects and investment real estate are an industries of focus for the bank. In all, we are committed to deliver superior, timely service with certainty in terms so that your company can focus on the renovation project.
If your Minneapolis/St. Paul Metro Area property management/real estate company could benefit from a bank that delivers specifically for you, please give us the opportunity to review your banking needs. We are committed to making our clients successful. Your success is our business!
Flagship Bank Minnesota is a Member FDIC and Equal Housing Lender.