With rent growth above U.S. averages, Salt Lake City remains a magnet for investors and developers alike, despite cost increases and limited expansion possibilities due to geographic constraints. The advantages associated with federally designated qualified opportunity zones (QOZ) have coaxed businessmen into considering the Wasatch Front an alternative to high-priced western metros.
According to Yardi Matrix data, almost 8,000 units were underway in the metro as of May. Among them, PEG Cos.’ 195 apartments at Paperbox Lofts. In March, the developer broke ground on Utah’s first project within an opportunity zone. The property is set to include retail and restaurant space, a 10,000-square-foot park and an automated parking structure. “This project will enhance the urban fabric of Salt Lake City’s downtown with its unique design, the activation of the live-work units on the ground floor and Utah’s first stand alone “car vending machine”-style automated parking system,” Kyle Jardine, development manager at PEG Cos., told Multi-Housing News.
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In an interview with MHN, the company’s director of multifamily, Matt Hansen, expanded on the benefits of investing in an opportunity zone and weighed in on what makes the metro so appealing.
Please describe Salt Lake City’s multifamily market nowadays and how it changed since the last economic downturn.
Hansen: The Salt Lake and greater Wasatch Front multifamily markets weathered the Great Recession much better than most of the country and they have really showed no signs of slowing down since then. Starting with the 2002 Winter Olympics, Salt Lake has evolved into a much “cooler” place to live than its previous reputation might suggest. People discovered the unparalleled access to outdoor recreation and the dining and nightlife have improved through major redevelopment efforts. Properties have become more sophisticated, offering high-end amenities and levels of finish that we haven’t seen in this market until recently. Utah’s young, highly educated workforce has attracted excellent employment opportunities in recent years and our Silicon Slopes tech sector continues to innovate and create new demand.
Although the new construction pipeline remains very active, we’re facing the same continual cost increases and labor constraints that are affecting much of the country. This makes it difficult for new development to be financially viable, so we often use our expertise in urban redevelopment incentives and opportunity zones to meet our economic hurdles.
What enticed you into building within a QOZ?
Hansen: We believe that location is everything. We are often able to detect areas that have major growth potential and “get in” before the real demand sets in and costs rise. That is what happened with many of our qualified opportunity zone projects in Salt Lake City, Provo, Ogden, Utah; Rochester, Minn., and Scottsdale, Ariz. Because deals that qualify for the opportunity zone benefits are right in our wheelhouse, we had a strong pipeline of qualifying deals we were working on before the regulations came out and opportunity zones were identified.
Our advice to people looking to take advantage of the generous tax incentives the program offers is to remember that not all QOZ deals are created equal. A deal should stand on its own, independent of tax benefits. A good deal is a good deal regardless of any special tax enhancement. Beware of anything that looks attractive only when looked through the lens of after-tax returns and any investment vehicles hoping to land attractive QOZ deals after raising capital.
How high do you expect demand to be for Paperbox units? How serious is the affordable housing crunch in the metro?
Hansen: I will be very surprised if the affordable units aren’t completely preleased before the buildings even open. There is incredible demand for affordable housing in the state, particularly along the Wasatch Front. Utah has historically been an affordable place to live, but according to a Gardner Institute report, we’re facing a growing “housing gap.” We simply aren’t able to build enough housing units to keep up with the rate of new household formation. This is especially bad news for aspiring single-family homeowners, but it also creates affordability challenges for apartments. Unless there’s a drastic shift in the economy or demographics of the state, I don’t see this housing gap going away in the near future.
How will this project and other developments underway in the district impact this part of the city?
Hansen: The central business district recently underwent a multi-billion dollar revitalization and the wave seems to be spreading to the west side of downtown. With the recent renovation of the Vivint Smart Home Arena—home of the Utah Jazz—and major investment in the renovation of the Gateway mall immediately to our west, the area is quickly becoming one of the most desirable urban neighborhoods in the state. Dining, entertainment, shopping, public transportation and employment are all within walking distance of the property. Some of the highest-rent multifamily properties in the city have recently opened here. We’re optimistic about the diverse mix of affordable, live-work and luxury units that will be available at Paperbox.
How do you anticipate Salt Lake City’s multifamily market to evolve?
Hansen: I grew up in Utah and it has certainly changed since my childhood. The rate of urbanization has been remarkable. I think we’re going to have to continue to build up rather than out, since the lakes and mountains that surround our city limit our ability to sprawl. Utah is still arguably the most family-oriented state in the union, but the single population is growing and families are getting smaller. Most people still want to own a home, but demographic and economic forces are delaying homeownership for many people, increasing the renter pool.
Utah has not historically been a very walkable place to live, but life without a car is possible in locations like the Paperbox site. I think we’ll continue to see densification along transit corridors and in our urban cores as Utah’s population continues to grow.