MARKET SNAPSHOT: Minneapolis is One of the Top Multifamily Markets for Acquisitions

By Erika Schnitzer, Associate EditorMinneapolis—Multifamily housing remains a bright spot in Minneapolis, according to Colliers Turley Martin Tucker-Minneapolis/St. Paul’s first quarter 2009 multifamily market report.Multifamily is performing the best of all real estate sectors in the metro, notes Gina Dingman, CCIM, vice president of multifamily investments, Colliers Turley Martin Tucker in Minneapolis.The lack of supply in the pipeline has contributed to the metro’s steady apartment fundamentals, including high occupancy rates, as well as rental rate stability. The MSA’s occupancy rate, which currently sits at 95 percent, has remained at this level, or within a few basis points, for the last five years, says Dingman. To further help occupancy levels, Dingman notes, fewer than 1,000 units are slated for delivery this year, and there is very little—if any—product in the pipeline. Though multifamily owners are not projecting much rent growth through 2009, there is about a 1 to 2 percent growth in “urban and first-string suburban locations,” says Dingman.And while suburban Class A properties do have some competition with the single-family housing market, those apartments in urban locations are performing well due to the lack of distress in the market, Dingman tells MHN, adding that Class B properties are currently performing the best, while suburban Class A projects are performing the worst. “We didn’t have a large number of condos built in our market, so we don’t have a huge shadow supply,” she says.The favorable apartment fundamentals are appealing to investors across the country, making the Minneapolis-St. Paul metro area one of the top markets in the nation for multifamily acquisitions.Dingman believes that, compared to most other markets nationwide, the Minneapolis MSA has not had much transaction volume. While she notes that the “bid-ask” gap is shrinking, properties “won’t trade at 5 caps like [they did] a few months ago.” She adds, that the city “has not seen a big jump in cap rates that some of the Sunbelt markets have seen.”Despite this, the Minneapolis/St. Paul’s office of Colliers Turley Martin Tucker recently completed a $43.5 million transaction for a 344-unit Class A property–$126,453 per unit.As for investment opportunities, Dingman believes that the best properties are Class B and C, as well as those in urban infill locations.While Dingman does not point to any specific problems for the metro, she notes that much of the market’s potential is tied into the bigger picture of the capital crisis, as well as the growing unemployment rate.“We have been a slow and steady performer for a long time,” says Dingman. “All of a sudden, that doesn’t look so bad.”(Click here to read last week’s Market Snapshot on Philadelphia.)