Near the corner of Brambleton Avenue and Duke Street in Norfolk, workers pour concrete and ratchet metal frames into place as a multistory apartment complex with 239 units takes shape.
Belmont at Freemason, scheduled to open this summer, is being built by Kotarides Developers, which is betting on pent-up demand for new apartments in Norfolk.
"In the last 10 years, Norfolk has not had a lot of new apartments delivered," said Pete A. Kotarides, a partner with the Virginia Beach-based firm. "Most of the apartment stock is 20, 30 or 40 years old."
But Kotarides isn't the only developer who saw opportunity in Norfolk and elsewhere in Hampton Roads. Within three miles of the Belmont at Freemason, nearly 500 more apartments are being built. Across Hampton Roads, developers are constructing nearly 1,700 apartment units, with an additional 2,000 planned.
While home building and sales continue to fall across Hampton Roads, apartment construction is booming. Many of the projects were planned several years ago, when apartment vacancy rates in Hampton Roads hovered around all-time lows of less than 3 percent. But as rental units flood the market in coming months, real estate experts and economists say rent prices could fall as supply outpaces demand.
"It's a very simple equation," said Vinod B. Agarwal, an economist at Old Dominion University. "The supply is increasing, and demand is not increasing at the same rate. Something has to give, and that something is rents."
Prices already have started to drop.
So-called "same-store rents," or the price of rent for apartments in buildings that have been around for a year or longer, fell 0.8 percent, to $871, in Hampton Roads for the six-month period that ended in October, according to Real Data, a Charlotte, N.C.-based apartment research firm.
It's the first time the research firm has recorded a drop in Hampton Roads' rents since it began tracking the data in 1997.
Meanwhile, Real Data found that the apartment vacancy rate in Hampton Roads during the same six-month period last year rose to 6.9 percent, its highest level in more than a decade.
And the growing supply of apartments probably will be exacerbated by the region's slowing job growth.
"The locomotive that pulls the apartment train is jobs," said Dan W. Johnson, a senior vice president at real estate firm CB Richard Ellis. "There's no question that if you review the announcements of jobs, there's going to be a little slumping of demand."
New jobs encourage the creation of households. As that growth slows, economists say the demand for all types of housing slows as individuals who might have gotten their own apartment opt to get a roommate or move back in with their parents.
After expanding 1.4 percent in 2008, civilian employment in Hampton Roads will grow 0.2 percent, or by about 1,600 jobs, economists at Old Dominion University say.
"All of those things in a recession environment can hurt us and make vacancies go up," said T. Richard Litton Jr., president of Norfolk-based real estate investment firm Harbor Group International, which manages some apartment complexes.
Another growing problem for landlords is the rising number of unsold houses and condos being pulled off the market and rented to would-be apartment occupants. Known as the "shadow market," these are not tracked by Real Data but usually grow as home sales slow.
The number of homes listed as rentals has gone up nearly 11 percent in the past year, according to Real Estate Information Network Inc., the local multiple listing service. There are currently 1,881 homes listed as rentals, up from 1,701 a year ago.
"What all of this is starting to say is, the flexibility of landlords being able to jack up rents is gone," Agarwal said.
Nearly one-half of the apartments under construction in Hampton Roads are in Norfolk.
In addition to the Belmont's 239 units, there are 225 units under construction at Roseland Property Co.'s 201 Twenty One, a mile north at 21st Street and Llewellyn Avenue.
An additional mile and a half up Llewellyn in Riverview, S.L. Nusbaum Realty Co. is months away from completing its 194-unit River House complex on a stretch of land beside the Lafayette River.
Nusbaum also plans to build 175 units at the Wachovia Center office complex, now rising downtown.
The city's concentration of apartment projects is driven in part by its vacancy rate, which at 5.3 percent is one of the region's lowest.
But the number of units on the way worry some.
"Any time there's a lot of new product on the market, it's got to get absorbed," Johnson said. "There are a lot of apartments coming up in Norfolk. It's a little concerning."
As new complexes open, vacancy rates in the city are expected to rise.
Wendell C. Franklin, the Nusbaum senior vice president heading the River House project, said he expects downward pressure on rents across the region as the economy weakens.
"I think we're going to be in a holding pattern," he said.
Franklin said landlords can't raise rents when vacancies are high because it might encourage tenants to seek out a better deal. It is hard, he said, to predict how long apartment demand in the region will be soft.
"We've never been in this economy before," he said. "There's no information you can go back and look at. It's a whole new ballgame."
The rising supply of new apartments also could force landlords of older buildings to reduce rents to keep tenants, Kotarides said. They'll also tout value and location to attract new ones, he said.
"They aren't constrained to charging certain rents in the same way that new developers of new products are," he said.
Rents at Kotarides' new Belmont complex will start at around $1,300 for a one-bedroom apartment.
Kotarides said he thinks his project, right beside the Norfolk YMCA and the light rail also under construction, could lure residents from other cities in the region who want to live closer to their jobs.
"Norfolk, obviously, has a large portion of the jobs in the area, a lot of the economic drivers in the region," he said.
Chesapeake is the next city facing a slew of new apartment openings.
With Hampton Roads' lowest vacancy rate at 5.2 percent, the city has more than 800 units planned for delivery by next year, according to Real Data.
Kotarides plans a 300-unit project, called Belmont at Providence, near the intersection of Military Highway and Providence Road in Virginia Beach, a location Real Data considers part of the Chesapeake apartment market.
Other projects planned for the Chesapeake apartment market include Wood Partners' 280-unit Streets of Greenbrier complex near Greenbrier Mall and a 226-unit complex called Cascades at Woods Corner by Bonaventure Realty Group.
Despite the number of apartments being developed and the softening demand, developers and investors continue to turn to apartments. Many see it as a smart investment in a weak economy.
Harbor Group, for example, added to its apartment portfolio in October when it purchased two Hampton Roads complexes for a total of $69.2 million. The two locations - Mariner's Cove in Virginia Beach and Steeplechase Apartments in Williamsburg - have nearly 700 units between them.
Litton, Harbor Group's president, said the investments made sense at the time, as homeowners struggled to get financing for or didn't want to buy a home during a slumping economy.
"Apartments still are seen as the best defensive investment in these times," Litton said. "People still have to have a place to live."
Josh Brown, (757) 446-2318, josh.brown@pilotonline.com
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Booming back to normal
The rental is "booming" back up to where it should have been before being artificially suppressed by the federal government trying to promote home ownership. The government created sub-prime market should have been the rental market.
We're sorry we're so late to post but it's really never too late
to state an opinion. After living in the area for 35 years, having a family, raising the kids etal, MY opinion is; If you plan on buying a property, Do not live in Norfolk. You have a better quality of life and more house for the money with lower prop taxes in Va. Bch. And in hindsight, just don't buy property. StaciM has it right. Rent! here's the smart part, never sign a year lease. maybe 90 days at a time, or even monthly until you know the neighbors, neighborhood and landlord. Look at the poor folks of Norfolk's East Beach in the MacMansions living across the street from multi-occupancy rental dwellings, and they are now pitching a fit, they are stuck unless they foreclose. Right now, prefering life in the tidewater area, I would find a cute bungalo in the Buckroe area, nearer to buckroe beach if i could, reasonable rent, multitudes of local attractions, and shopping dining, and still have the mobility to relocate when the whim arises. Never ever live in an apt. complex, you are susceptible to the behavior of all the other tenants, most hopefully civil, but too often there arises a faction of cretins who just impose our serenity and security. I would have had more freedom and
Karens - it's all about
Karens - it's all about extracting the most money possible out of the land. They build giant boxes squished together to try to get as much money as possible out of their investment. $500K per box is better than $100K.
Charlie99 - It's lipstick. Granite, Stainless steel, maybe some tile. Homebuilders add $10K in upgrades and pawn it as $100K. Do renters care about the flavor of the month? Remember, home buyers could go for negative equity and teaser rate loans. Renters really have to pay the rent. As a renter, I want to pay less than I pay now, with more room for toys. I don't care about flavor of the month lipstick. Heck, the "high end" appliances are prob all less quality than the ivory ones made a few years prior given manufacturing trends.
The Problem
I truely believe one of the problems is that in this area they don't build affordable homes. Back in the day, for instance, the first home I owned, the neighborhood was build in the early 1970's, with simple 1100-1800 sq ft homes. They were affordable. They build nothing of the sort now. Many folks who work for a living such as teachers, police, fireman and etc can only afford in the older smaller homes and those homes are selling. I just don't see why Hampton Roads - including the peninsula - can't build more affordable homes. Not every home to be built has to be 3000 Sq Ft. This area simply does not have the jobs to support all new housing to be so expensive, while, most of the affordable housing is homes from the past. If it was OK in 1970, then why not now?
I don't think they will ever
I don't think they will ever be section 8. Although perhaps the older stuff will take over section 8 and the newer build out will fall to the market the older buildings serve. Megaman - I agree, but over the past few years greedy rich people set up greedy not rich people to sign up for a lifetime of debt servitude to buy into the American dream. But at the end of the day, the entire American lifestyle faces real challenges. Over the past years, it hasn't made sense to buy. Some people (me) realized this. I'd buy, if it made sense, and I knew where I wanted to live. But it doesn't make sense, as the market is still over valued. I look at what I earn, what the median household income is, and what the median home prices are. It doesn't pencil out, and there is much pain to come. It's not my fault. It does get old hearing people that bought 8 years ago rub it in though. They admit they couldn't afford to buy what they have today, but still think young people should follow in their footsteps because it worked out for them. (And yes, I *hate* renting, and hate the people I rent from, but looking at my bank statement helps).
Sorry...
But I have to laugh at the comment by STLCougar about how these communities are going to end up being Section 8 housing! As someone who works in this industry, & directly with some of these developers, I can assure you that these ARE not Section 8 homes! These communities will be some of the finest in the area, top-of-the-line fully loaded A-Class properties. For anyone still doubting, just check out the respective websites.
I know this is an old
I know this is an old thread, but just incase people find it on google. In NYC, they are now turning brand new never lived in condos into places for the homeless to live. City is paying $2700/each to the developer, and the homeless get granite and stainless steel. 100% serious.
On target STLCougar...
Yep, that is exactly correct. I know people that have to provide "maintenance" services to high dollar public housing in northern va. Same people destroy the same things over and over within weeks. Cabinets, walls, flooring, doors, etc. You can see where this is going with Nobama. Once the taxes start hitting us to take care of the freeloaders, we will all be happy to just be able to afford an apartment. Look over to Europe for the future USSA.
Section 8 housing
These new apartments are going to be nothing but defacto government housing projects. The government no longer builds those ugly housing projects because the now give out rent vouchers based on the "prevailing rate" in the communtity. Obviously Norfolk has a high population of section 8 renters and these landlords are building these apartments to fill them with section 8 renters who pay $48 a month and YOUR TAX DOLLARS will pay the balance of the $1400 a month for these brand new apartments that will look like DC/Chicago slums within about 3 months because the tenants have no stake in them and don't care because they don't own them. The landlords are happy because they get inflated guaranteed rent from Uncle Sam and the welfare housing project dwellers will be thrilled at new apartments to destroy. Why doesn't the government have section 8 housing assistance for homeowners instead? The cost would be the same, the housing industry wouldn't be in shambles and the residents might take better care of the property if they have a stake in the neighborhood.
Home Ownership
is and will always be the cornerstone of American family values. Owning a home teaches family unity, pride and a sense of well being. I could care less if my home is not worth big money, money is not everything. I bought my house for my family to have privacy and enjoy the tranquility that owning a home brings. Yes the upkeep is a pain in the $$$, but I would not trade it in for anything in the world. Sorry, I have to leave now and check my ribs on my grill in my outdoor kitchen:).
239 units starting at
239 units starting at $1300
I think there will be echos in the halls.
Maybe section 8 for bankers?????
Lame
Who can afford $1300 for a one bedroom? That's absurd. The builders are banking on people renting due to the economy. With rent prices like that, how can a person who lost their job and had to take a lower paying job going to afford rent like that?
Rent v. Mortgage
Everyone who is renting and thinking about buying needs to take a look at a Rent vs. Buy calculator. There are some great ones on the internet.
For instance, I pay $1,000 a month in rent. If I was to buy a $200K home (which is the going sale price where I rent), assuming a tax rate of $2,000/year, maintenance costs of $1,200/year, a loan at 5%, and 5% down it would cost me $1600 month.
If put the $600 a month difference ($1600 mortgage - $1,000 rent) in the bank and continue renting I would have over $72,000 in the bank after the ten years. It would take me well over TEN years to build up $72,000 in equity in a home even with a decent rate of appreciation.
With home prices in Hampton Roads so high...it isn't worth buying a house right now--at least for me.
Renting vs. Buying
I have had friends try to persuade my husband and I to buy a house. During the bubble, we saw prices climbing higher and higher. So we didn't get in. And then the market tanked, and we still have not bought because we do not want to be upside down in our loan, owing more than the house is worth. In these years we have been renting, and our savings are enough to pay for a year of unemployment, if either of us lose our job. All of the savings are FDIC insured, and we have also been contributing to retirement plans. The rent we pay is still lower than what we would pay for a decent house in this area, so while we watch prices continue to slide, we continue to save. Now tell me, who's the idiot here?
Going to need more apartments soon
Look up and down a single detached home residential street today. According to HUD statistics, 1 in 8 or 9 are delinquent or already in foreclosure. Just over 12%. My street has roughly 30 homes in my block, thats 2, maybe 3 automatically in financial burden.
I say build them, however, I also think that we need to avoid some of the federal government subsidy that makes the newer and nice apartments off limits to folks that make decent money.
It never fails to amaze me that because some folks work hard, make their skill sets work for themselves and their family, that they can not live in a nice place due to rent subsidy from the govt.
Yes there needs to be nice neighborhoods for folks stuck in a rut, but not to the point that folks will not work hard to get out of that rut and just continue to milk the system.
Why on earth would anyone want to buy when we are not
Sure the market has bottomed? Chris, it makes no sense to buy a house in a falling market. Think about it. Let's say you buy a house for 150k now that was 200k a year or so ago. Further that you put 10% down and manage to get the low interest rate. Sounds like a good deal, right? Wrong, If the market continues to fall then you end up being upside down and owing more on the mortgage than the property is worth. You are now stuck and you take a major loss if you decide to sell or may have to wait a long time before your property gets back to its former value. I know several Navy families that buy homes when they are stationed here for a few years. Most of them are looking at taking 30k to 75k losses as they move to new stations.
The better option in this market is to work with lenders of foreclosed homes. In some cases they will let you just rent with option to buy and the final price is to appraised at a later date, hopefully when prices have stabilized. Chris you need to keep your thoughts to yourself.
I'm sure glad they are helping
Two bedroom apartments are averaging $900 or more a month. Three bedrooms are around $1250. The more upscale units start at about $1500 for a two bedroom unit. The developers know, as they said, you have to live somewhere. They are doing nothing more than getting their share of the pie.
hey there Chris33
why don't YOU pony up 25-33% down for me so I can stop renting. Besides...this whole mess was caused by banks just tossing home loans to anyone and everyone. so even at 5%, not everyone is going to qualify anymore. so to back up the other poster so far...yes, your statement was very stupid and out of touch.
Yeah
Quite dumb. Who's gettin 5%? How many more people do you want to screw up the market and not be able to pay their mortgage? Even if it was -5%, most Americans can't pay it. How many are in foreclosure, late, or just filing for bankruptcy, just in Hampton Roads alone?
Kotarides doesn't get it...
Kotarides doesn't get it... I've worked for two technology companies in downtown Norfolk. Neither of them would support rents that high. We had *1* coworker other than me that lived in Downtown Norfolk, and his rent was much lower than that, and he moved out of downtown Norfolk as the building was horrible, rent was "too high" (for 2 bd/2bth in new construction). Everyone else already has fancy homes. The other companies I know of are the same. Either older people who have really nice home pre-mania, a few younger people with homes, and then a few renters that aren't going to pay those kinds of prices. Light rail? Do you really think someone is going to pay a premium to ride the bus? The greed of the older folk will drive out all the younger folk. I encourage all young, educated, smart, creative, inventive people to LEAVE the region! But I don't need to, because looking at Facebook and Myspace, and past trends, they for the most part do. Sorry greedy old people, you can't own both low paying companies and high priced investment properties and have it work forever.