Baltimore Business Journal: Supply May Soon Catch up with Demand for Apartments
December 17, 2010
People need a place to lay their heads after the work day’s done, even in a recession.
That simple premise has given rise to a surge in new apartment construction in Greater Baltimore in the past three months, as developers look to take advantage of rising foreclosures, federally funded aid programs, and what most builders see as a shortage of affordable rental housing.
Permits for multifamily buildings in the Baltimore-Washington region spiked in the third quarter of 2010 by 427 percent compared to the same period a year ago, according to newly released data from the Federal Deposit Insurance Corp. That is the largest year-over-year increase in more than two years, an encouraging sign for developers like the Greater Baltimore AHC Inc.
The developer hopes to close on about $8 million in financing by February to renovate the former Franklin Square Section 8 housing project on Baltimore’s west side. The project’s 72 apartments, in the 1500 block of West Franklin Street, will be renamed Union Rowe Apartments and be available for rent to low-income residents. Residents earning 60 percent or less of Baltimore’s median income will be eligible for the apartments, which will rent at an amount based on their ability to pay.
“There’s going to be huge demand for units, we foresee it,” said Andrew Vincent, director of the Greater Baltimore AHC. “There’s very little supply when it comes to decent housing in the area. At that price level, people are renting places that are a lot less desirable.”
AHC was aided by $662,000 in federal Neighborhood Stabilization program money to buy the property, which cost $725,000. It is one of several federal programs helping to fuel new apartment construction in the region, which range from federally insured mortgages to tax credits that help developers raise the cash they need to buy, build or renovate apartment, duplex or condominium buildings.
Beyond those incentives, though, many for-profit developers are finding there’s a distinct shortage of rental units in the region. Baltimore’s apartment vacancy rate stands at about 3.6 percent for top-tier apartments, according to market research firm Delta Associates. The average rental rate now hovers at $1,468, up 9.5 percent from last year.
Residents who lost their homes to foreclosure, lost their jobs, or just graduated from college are looking to move into apartments instead. Some are even desperate to move out of their parents’ homes once they land a new job, said Toby S. Bozzuto, president of Greenbelt’s Bozzuto Homes.
“When they get a job, they’re looking to get out of their parents’ basements and get into an apartment,” said Bozzuto, who recently celebrated the October grand opening of his company’s $77 million Fitzgerald apartment complex in Mount Vernon. The 275-unit building is now about 65 percent leased, with residents a mix of nearby university students and employees at Johns Hopkins Hospital and the University of Maryland Medical Center.
Hoping to build off the project’s success, Bozzuto is now planning to break ground a year from now on Union Wharf, a 270-unit waterfront development in Fells Point slated to cost between $50 million and $60 million.
Bozzuto said investors like pension funds have started to put their money back into real estate development over the past nine months, as the shock of the housing slump has started to wear off. The Greater Baltimore region is one of the primary beneficiaries of that increased interest, he said, since there is a shortage of available rental housing and employers are starting to hire in greater numbers.