An Insider’s View on Multifamily Development in Indianapolis

Milhaus’ Brad Vogelsmeier explains what makes this Midwestern market compelling and why he expects secondary markets to continue to perform well going forward.
Brad Vogelsmeier, Vice President of Development, Milhaus. Image courtesy of Milhaus
Brad Vogelsmeier, Vice President of Development, Milhaus. Image courtesy of Milhaus

Underpinned by an affordable cost of living, Indianapolis makes a perfect location for both real estate investors and residents, according to Milhaus Vice President of Development Brad Vogelsmeier. “The risk-adjusted return in a market like Indianapolis is increasingly becoming more attractive than what you would otherwise find in typical institutional markets,” he told Multi-Housing News

Earlier this summer, Milhaus opened Grid, a $30.4 million project that includes a coworking component. The community is the company’s first development in an Opportunity Zone, but definitely not the last one, Vogelsmeier said. At Milhaus, he manages all aspects of development projects, including site identification, concept design, zoning and approvals, construction, lease-up and delivery. Here’s how much he plans to expand and what his investment strategy includes, considering the pandemic-mandated changes in the business environment. 

READ ALSO: Indianapolis Multifamily Report – Summer 2020

How are you ensuring residents’ safety when they’re using common-area amenities?

Vogelsmeier: We’re following all the appropriate Centers for Disease Control and Prevention guidelines at Grid and all other properties. This includes removing some seating in common areas to ensure social distancing and limiting capacities in areas, as well. Residents are required to wear a mask in all common areas of our buildings, which would include the coworking area. We’ve taken extra care to ensure common areas are cleaned more thoroughly and frequently. While some might see this as an inconvenience, it’s also the norm we live with today and resident health and safety are always top of mind for us.

Do you intend to expand your portfolio in Opportunity Zones throughout Indianapolis or other metros?

Vogelsmeier: Milhaus’ investment strategy and company mission is to invest in quality, typically urban neighborhoods in secondary markets across the country. We also want to be a long-term holder of assets in these locations because we believe in the quality of life, growth and stability that these cities and neighborhoods provide. We were lucky, or fortunate, that when the Opportunity Zone maps were drawn, they frequently aligned with the locations of our active development pipeline.

Grid is a great example of this. The tax regulations are really an added benefit for us in that they protect our long-term investment vision—a minimum of 10 years, per the regulations—and they’re in locations and neighborhoods that we’re very familiar with. Grid was our first Opportunity Zone project and we have since closed and started construction on two additional projects, and expect to start five additional projects before the end of 2021.

At Milhaus, you’re responsible for concept design, among others. How has your vision on development been altered by the health crisis?

Vogelsmeier: We’re constantly modifying our designs and program to adjust to the needs of our residents. I believe this pandemic has confirmed the notion that we crave community and social interaction, two things that have drawn people to cities for years and will continue to during and  after the pandemic. Not that these things can’t be achieved in a suburban or rural setting, but the diversity and authenticity of city life can’t be replicated in my mind.

Does it change the way we design our cities? Absolutely, but cities play a critical role in enhancing our overall quality of life both for those who have the ability to choose where they want to live, and, more importantly, for those who don’t. Cities need our support and continued investment more than ever, and building denser, urban housing is key to this continued growth.

What was the biggest challenge you’ve had to overcome since the onset of the coronavirus outbreak?

Vogelsmeier: The unknown, much like everyone else. Capital markets were very skittish at the onset of everything in March, well into the second quarter. It took a lot of focus and diligence to keep development projects moving forward, keep our onsite teams safely operating and make sure residents’ needs were also being addressed.

How has the pandemic impacted your access to construction financing?

Vogelsmeier: We are fortunate to have built a lot of strong and transparent lending relationships over the years. Over-communication has been critical to keeping our projects moving forward and we’ve still been able to close construction loans on 1,360 units—$222 million of construction debt—this year.

Are there any positive trends you’ve seen in the metro’s multifamily sector in the past few months? 

Vogelsmeier: Our investment focus has been primarily on secondary markets across the U.S. By nature, the cost of living is generally much more affordable, and employment is more stable in these locations than in larger coastal or gateway markets. With the evolving remote work atmosphere, we’ve actually seen a lot of in-migration—both renters and homeowners—into secondary markets over the last six months as people seek a more affordable location, but one that still has a similar quality-of-life benchmarks and amenities to larger cities.  

What features will be most prevalent in multifamily development going forward?

Vogelsmeier: We have spent a lot of time focusing on shifting resident preferences and staying ahead of trends, but I think COVID-19 has created what many will see as necessities, not preferences, moving forward in urban living. 

Rethinking natural light seems like a no-brainer and really something that I don’t think can be overlooked. Having to stay home for an extended period of time only heightens the importance and the role that getting outside has on both maintaining physical and mental health. Work-from-home policies are also about to get a lot more flexible moving forward, and, in order to make that sustainable, we’re going to need to get creative on how we incorporate true workspace into already compact apartment footprints.