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2008-10-22

Tuesday, September 23, 2014

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If you build it, will they come?

BY KELLY FRASER
Daily News Editor
Published October 21, 2008

While foreclosure signs are popping up across the rest of the country, the I-beams and cranes of high-rise developments are sprouting up around campus.

KRISTA BOYD/Daily
The living room of a model unit for 4 Eleven Lofts, which will open next year.
KRISTA BOYD/Daily
Bedroom in an apartment in The Courtyards complex that opened on North Quad this fall.
KRISTA BOYD/Daily
The living room in an apartment in The Courtyards complex that opened on North Quad this fall.

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These lofts, condos and apartments will be more resort than residence hall. At a price tag of about $1,000 per month per bedroom, marbled granite countertops, ten-foot ceilings, sleek modern furniture, private baths and flat-screen LCD televisions are standard. Not to mention the tanning beds, movie screening rooms, pool tables, gyms, green roofs, state-of-the-art security systems and badminton courts that developers have included to further entice students into paying more for extra amenities.

For decades, both the near-campus housing market of converted colonials and the on-campus market have remained relatively stagnant. But in the last several years, the city has warmed to high-density development. This, combined with what analysts say is an unmet demand for new student housing, is fueling a veritable construction boom.

Next fall, a new wave of luxury apartments will open, adding more than 2,000 beds to the near-campus housing market. And this is just in the next year alone, at the least, the total will increase by an additional 1,500 beds, spread across three different developments in the next two to three years after that.

This may not seem like much at first, but with an estimated 34,000 students living off- or near-campus, this surge of new construction represents nearly a 10-percent increase in available housing.

Although the jury is still out about whether the developers behind projects like 4 Eleven Lofts, Zaragon Place, 601 Forest, The Courtyards and 42 North, will find the demand they are banking for, the situation seems to be a win-win for students.

WHY HERE? WHY NOW?

A constant stream of affluent students willing to shell out for creature comforts and the lack of new construction in recent years has made campus a ripe market for developers.

“It’s obvious,” said Rick Pearlman, president of Zaragon Incorporated, the company that is building Zaragon Place on East University Avenue. “When you go around you see that most of (the student housing) is very old, very tried.”

Allen, who is an adjunct real estate lecturer in the College of Architecture and Urban Planning and the Ross School of Business, said he was confident that first wave of luxury complexes close to campus — like Zaragon Place and 4 Eleven lofts — will be popular with students.

“The developers of these two developments know the campus. And they think they know the student values. So it was not a big leap of feasibility to think Zaragon and 4 Eleven Lofts would work here,” Allen said of the Chicago-based developers Zaragon Incorporated and Joseph Freed and Associates, who are building Zaragon Place and 4 Eleven Lofts, respectively.

One reason developers may have picked this as the time to build, Allen said, is that the residential rental market is not as sensitive as other real estate markets to the current financial crisis.

“Residential rental is the only niche market today to be able to get financing,” he said.

In recent years, city officials have also grown friendlier to developers. In 2006, Ann Arbor City Council passed the Ann Arbor Discovering Downtown Initiative, which placed a priority on high-density development in the city’s urban core.

WILL STUDENTS PAY?

As developers bank on the perceived reliability of students’ demand for high-class living, some traditional landlords and residents worry that even Ann Arbor, with its constant stream of renters, can support such a sudden surge of new development.

A one-bedroom apartment in 4 Eleven Lofts, which will open in May, begins at $1,295 a month while per-person rent for a four-bedroom starts at $835 a month. At Zaragon Place, which will also open in May, a four-bedroom suite is $4,000 a month.

The Courtyards, a more suburban-style complex on North Campus that opened its first building this fall, will rent a one-bedroom apartment for $1,149 a month, and charge $649 per person for a four-bedroom, four-bath suite next fall.

These rates are well above what the average student pays. In 2007, the average rate for a one-bedroom apartment was $776 and the average total rate for a four-bedroom unit was $2,085 ($521 per person), according to the Off-Campus Rental Rate report complied from rates advertised on University Housing’s off-campus housing website.

Though fluctuating from year to year and varying depending on the month of the survey, near-campus housing rates have stayed relatively flat over the past 10 years.

Allen, the developer and lecturer, said he was confident that the complexes within a five-minute walk to campus will lease quickly — that is, at least the first three or four to open.

“The question, I think, is there room for two to four more,” Allen said.

It will be those complexes, he said, that will “plumb the depths of the marketplace.”

Allen said that behind the line of developers with projects already underway, another group is watching carefully, deciding when and if to throw their hats in the ring.

Developers are waiting “to see how the market shakes out in the next year,” he said.

Prospective developers wonder if students will latch on to the loft model, paying one or two hundred dollars more a month for a fully-furnished room or the peace of mind that comes with key card entry systems and a security guard stationed downstairs.

And if these complexes do fill, the question becomes how many more can the campus housing market support?

Both Alice Ehn, the executive officer of the Washtenaw Area Apartment Association — an advocacy group for local rental companies — and Jeff Scott, marketing manager for 4 Eleven Lofts, agreed there is plenty of room for more.

“We think it’s a good thing. We think the University of Michigan is diverse,” Ehn said. “This is a niche of housing we don’t necessarily have here.”

Those that wager that the market for high-end housing is large, mentioned campus’ unfulfilled demand for new housing.
“The student population grows almost every year and housing has not kept up with that,” Scott said.

In addition to offering similar advantages when it comes to location and security, these new complexes are also restructuring how rent is charged — a change that the complex’s developers think will especially appeal to parents footing the bills.

Many of the complexes, including 4 Eleven Lofts (411 E. Washington Street) and The Courtyards (1780 Broadway Street), operate with individual lease liability, meaning that each resident pays their portion of the rent directly to management and is not held responsible if his roommate bounces a check or punches a hole in his bedroom wall.

The Courtyards, 4 Eleven and Zaragon Place all offer random roommate placement for people who don’t have a group of roommates already. And the Courtyards has sometimes been termed a “private dorm” because a community adviser — residents trained very similarly to a resident adviser in the dormitories — is stationed on every hall. 601 Forest, the 14-story high-rise on the corner of South University Avenue and South Forest Street, which was green-lighted by the Ann Arbor City Council Monday, will also have RA-like staffers.

Develops are confident that all of these offerings combined will attract students in droves. But skeptics, including landlords of traditional near-campus housing, say that the size of the pool of students who can afford these comforts has been greatly overestimated.

“In general, the landlords I’ve talked to think they’re dreaming when they think they can get that much rent for a shared unit like that,” said Catherine Robertson, owner of Tree City Properties, which operates about 20 rental houses near campus.

Robertson added that in the last couple of years students have been asking for more affordable units before they have been asking for more amenities.

“I think they’re willing to not have those amenities to pay less in rent,” she said.

Sam Copi, property manager for Copi Properties, said he doesn’t expect the new developments to have a large impact on the overall rental market.

“One or two buildings in a huge city like Ann Arbor, I think won’t have significant effects,” he said

Copi said his company, which manages about 30 houses in the East University Avenue and Oakland Avenue area, has already leased two houses directly behind Zaragon Place for next fall.

WHAT'S THE FUTURE OF HOUSING?

The properties that are more than a 10 minute walk to campus, located in the outer ring of rentals near campus like the Burns Park or the neighborhood near Oxford, will likely be the most vulnerable to the influx of high-density development, Allen said.

“Landlords in these outer areas going to suffer with higher vacancies if they don’t significantly upgrade their properties or reduce their rents,” he said.

Copi agreed that the introduction of brand-new housing may lead landlords to upgrade and improve their properties.
“I think it has made us conscience of the fact that students really do want nice housing,” he said.

For the past five or ten years, Allen said, Ann Arbor was growing in a more suburban model with cheaper apartment complexes going up on the edge of town. And with the introduction of the Ann Arbor Transportation Authority’s policy allowing University students to ride the city buses for free in 2004, students began choosing housing located a 10-minute bus ride from campus rather than a 10-minute walk.

But the city’s new acceptance of high-density development downtown has changed the playing field.

“The pendulum is shifting towards walkable urbanity,” Allen said.
Landlords may need to update their properties — especially houses that have been home to a continual stream of students for decades — in order to compete. In some cases, houses that have been divided into student apartments may revert to single-family housing, shrinking student neighborhoods.

From the perspective of local homeowners, who have long bemoaned that student neighbors with their beer pong tournaments and porch couches have lowered property values, such a change may be good news.
“(It) could be good for these residential neighborhoods like Burns Park,” Allen said.

Robertson said she was optimistic that her business, which is mainly leases houses in the south campus neighborhoods, won’t decline because of the new developments. She said the individual attention her company offers tenants and the character and privacy of her houses put her properties in a different market than the new apartments.

But she said houses on the farther fringes of the student neighborhoods could fair worse and be left vacant and in disrepair.

“Time will tell,” she said.

WHAT ABOUT NORTH QUAD?

There’s another, sometimes forgotten player in the campus housing market looking to compete with the new complexes.

In the competitive housing market, the University has long lagged behind private landlords, but with construction projects like the Hill Dining Center and North Quad — both apart of the Residential Life Initiative launched in 2004 — University administrators trying to pay catch-up.

When completed in the summer of 2010, North Quad will be the first new dormitory built since Bursley Residence Hall was completed in 1967. It’s the wild card in the future of the campus housing market.
For years the portion of students living off-campus has remained steady at about two-thirds. But with North Quad, University Housing hopes to change the stigma about staying on campus.

Like its near-campus counterparts, the 460-bed residence hall will attempt to provide a more comfortable lifestyle than has ever been attributed to dorm living.

“We know that students are all interested in more comfortable living,” University Housing spokesman Peter Logan said. “For so long the University Housing facilities have not kept pace with standards of living.”

Each year, Housing surveys dorm residents about their housing preferences and improvements they would like to see, and always receives similar answers.

Students’ requests (proximity to campus, wireless internet, better cell phone coverage) are the same things the new developments are rushing to provide.

And unlike most campus residence halls, which are for the most part filled with first-year students, North Quad’s suite-style rooms will be marketed toward second, third and fourth year students, likely making North Quad more of a factor in the off-campus housing market than other dorms.

“Certainly a facility like North Quad, aimed at second-year students and beyond, does compete a little more directly,” Logan said.

Regardless of nearby off-campus developments, the University is confident that students will choose to live in North Quad, Logan said.
“What’s going up around us doesn’t make us feel that we’re in danger of not filling North Quad,” he said.

North Quad will offer many of same amenities as the complexes now under construction, including wireless Internet access, study lounges and semi-private bathrooms, but Logan said he thinks it will be factors like the academic support, dining hall and on-campus location that will give North Quad “the competitive advantage” over new near-campus options.

THE BOTTOM LINE

While many say it is too early to tell just what exactly this wave of luxury building will mean for rental rates or the shabby houses that for so long have defined the campus housing market for so long, it is clear they will have an impact.

Traditional landlords could begin to offer more to compete, or the new developers could realize they over-estimated market demand and lower prices. Either way, when more housing options appear around campus, students will likely end up better off.


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