Development

Apartment boom in KC metro area is unlikely to slow anytime soon

Surrounded by luxury amenities — like stainless steel appliances and granite countertops — in her apartment at The Landing at Briarcliff, Isabelle Shaw tossed an ice cube to her dog, Jax. Shaw has found many advantages to apartment living in Kansas City.
Surrounded by luxury amenities — like stainless steel appliances and granite countertops — in her apartment at The Landing at Briarcliff, Isabelle Shaw tossed an ice cube to her dog, Jax. Shaw has found many advantages to apartment living in Kansas City. along@kcstar.com

Trendy new apartment towers and historic building conversions in downtown Kansas City are in the limelight, but the metro area has experienced a quieter — and no less significant — boom in apartment complex construction throughout the city and suburbs.

About 3,000 new residential units are in the works for the city’s core. At least that many units opened last year alone in just the largest new metrowide apartment developments.

And they’re filling as fast as they’re opening. Overall occupancy rates in the area are 95 percent or higher, even as rental rates have risen.

This surge, particularly in upscale and “lifestyle” complexes, mirrors a national trend toward amenity-rich apartments that include pools, gyms, media rooms, social centers, landscaping, high-end appliances, granite countertops and upscale flooring. Renters might even get on-site dry cleaning pickups or development-sponsored poolside parties.

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The boom is fueled by big sectors of the population who can’t qualify for a mortgage or simply don’t want to own a house.

“The demand is market-driven,” said Ken Jaggers with Integra Realty Resources in Mission. “It’s driven by millennials, by empty nesters and by divorce, groups that are especially prone to rent instead of buy.”

For Isabelle Shaw, a sparkling new unit in The Landing at Briarcliff, just five minutes north of downtown, is a no-brainer, with the complex’s gym, swimming pool and covered parking.

Then there’s a bonus she didn’t expect — a social network built among tenants who meet in the public spaces rather than closing their apartment doors.

“It’s the live, eat, play thing,” said the 25-year-old woman. “Whether you’re downtown or in the suburbs, you’re finding things like garden areas where tenants can enjoy the same amenities they’d have with a house and a yard. And you don’t have to buy a gym membership somewhere else.”

At any one time, about 35 percent of the metro area population rents instead of buys housing. That’s in line with national metro-area averages and shows no sign of changing.

Options expand

Apartment developers such as Dana Gibson, with Mallin/Gibson KCLoft in the River Market area, said apartment vacancies — just enough to handle normal turnover — are scarce enough these days that some would-be renters are complaining about lack of choice.

“Especially people who move from the coasts are asking, ‘Is this all that’s available?’ ’ Gibson said.

But Gibson raises an important point about the development surge: “We do need to diversify our product. We can’t price ourselves above the budgets of the restaurant and back-office workers who are priced out of the market if average rents get too high.”

In fact, low-end rental rates also have surged in the last couple of years, and a recent national study showed that affordability is a big stumbling block. Low-end rates of $350 a month a few years ago are at least doubled now, and even that isn’t enough to entice developers to build “affordable” multifamily housing. Sufficient returns on investment come from higher-end properties.

“Time will tell if current rental preferences play out over the long term,” said Daniel Kann with Valbridge Property Advisors in Overland Park. “At the current state, all markets in the Kansas City area are not overbuilt.”

Kann said the metro area had several years post-2008 when very few new multifamily complexes were built. A turnaround began in 2012, but the real construction surge came in 2014-2015. And, he said, permits filed for new units show no indication of a 2016 slowdown.

An analysis by Yardi Matrix and its partner company RentCafe said the biggest higher-end rental complex completed last year in the Kansas City area was The Landing at Briarcliff, which added 350 units just across the Missouri River north of downtown.

One Light, the high-visibility new 24-story tower in the heart of downtown Kansas City, added the second-largest number of apartments last year, 307, barely edging out WaterCrest at City Center in Lenexa, with 306 rental units in a suburban layout.

The rest of Yardi Matrix’s 2015 top 10, arrayed throughout the metro area: 290 units at Villa Milano in Leawood; 280 at The Ranch at Prairie Trace in Overland Park; 259 at Kelly Reserve in Overland Park; 223 at The Heights at Linden Square in Gladstone; 177 at The Residences at Park Place in Leawood; 176 at 51 Main near the Country Club Plaza; and 169 at 46 Penn, also near the Plaza.

The 10 largest complexes plus others of at least 50 units that opened last year added 3,047 rental units, according to the Yardi Matrix tally. Traditionally, that’s about the minimum new count needed simply to keep up with metro population growth. Of course, there were hundreds more units added last year in smaller and less pricey developments around town.

Some apartment developers and managers say a slowdown could occur. Older millennials, as they marry and have children, are inching into homeownership, leaving apartment living behind. And even as the boomer bulge wants to jettison lawn mowing and house maintenance in favor of market-rate apartments, the oldest segment of the population is gravitating toward senior living communities, assisted living and big “continuum of care” developments.

For now, though, the appeal of “lock and leave” living persists, said landlord Gibson.

“I’ve been in this business for 30 years,” Gibson said. “People have always left to buy houses and make babies. But we have school buses running in the River Market now. Apartment living isn’t the issue. People are taking more of a houseboat approach to their spaces. It’s a social change taking place, a downsizing of things.”

Rental rates climb

The surge in apartment living is occurring despite the fact that rental rates have been rising at more than double the pace of wages, according to Zillow, a real estate data firm.

In February, Zillow found a national slowdown in the rise of rental rates, measured at a seasonally adjusted 2.6 percent higher than a year ago — bringing rent increases more in line with the 2.2 percent increase in average hourly earnings tracked by the U.S. Department of Labor.

The preponderance of high-end apartment developments, like the area’s 10 biggest developments completed last year, could make for luxury-level vacancies if rent increases continue to outpace wage growth.

“The imbalance of households who can afford a luxury rental in comparison to the number of luxury projects currently under construction or planned” could be a concern, Kann said. “The affordable renter segment is much larger in terms of population and is being overlooked in terms of new construction.”

The median apartment rental rate nationally was about $1,380 a month, according to Zillow. It was about $1,200 a month in the Kansas City area, largely because of significantly heftier rates in the Johnson County suburbs. In Overland Park, for example, half of the rentals were higher than that city’s $1,778-a-month median rate.

The Yardi Matrix data said rental rates in the winter of 2016, for one-bedroom apartments in the entire Kansas City area, ranged from $330 a month to $1,679, and the two-bedroom range was $549 to $2,564.

Appraisers note that developers’ ability to push rates higher is constrained by the generous supply of product.

Also, “the for-sale market is still constrained by the lack of millennials who can qualify for home loans because they’re burdened by student debt, or have no savings, or are working in lower-wage jobs,” noted Kann, the apartment appraiser.

Downtown apartment developers agree there’s a stronger market for one-bedroom units renting for less than $1,000 a month than for any other configuration.

No one predicts an imminent attempt to turn rental units into condominiums. The last condo surge, in the early 2000s, wasn’t a long-term success. Many intended condo units never sold and are now on the rental market.

Diane Stafford: 816-234-4359, @kcstarstafford

New units built or announced in the KC metro area

Chart covers market-rate rental complexes of at least 70 multifamily apartment units

Geographic area

2012

2013

2014

2015

2016

2017 *

Downtown/east Kansas City

0

70

130

861

920

140

Gladstone/Liberty

0

0

0

511

811

196

Jackson County

0

0

0

0

309

335

Merriam/Mission/Prairie Village

0

0

0

0

91

0

North Kansas City

263

0

0

340

0

332

Olathe

0

0

0

0

228

0

Overland Park, north

0

0

230

316

230

0

Overland Park, south

212

0

508

675

272

344

Platte County

0

0

298

0

350

0

Shawnee/Lenexa

0

220

808

306

565

380

Grandview/far south

0

0

300

0

0

0

Plaza/university area

0

0

0

421

0

140

Wyandotte County

0

228

0

311

0

0

TOTALS

475

518

2,274

3,741

3,776

1,867

* proposed

Source: CBRE Kansas City

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