What’s Shaping Multifamily Development in the Midwest
Insights from Milhaus' Brad Vogelsmeier on the markets with robust pipelines of new product.
Multifamily developers continue to be active in the Midwest, despite the uncertain economic environment. This doesn’t mean that they don’t have challenges to deal with, but the region’s historic resilience and lower cost of doing business are pushing multifamily developers’ projects forward.
Milhaus is one of the most dynamic development firms in the region. The company recently surpassed the 10,000-unit threshold for units built since its founding in 2010.
Multi-Housing News caught up with Vice President of Development Brad Vogelsmeier, almost three years after our last discussion. He revealed details about the hottest markets for development today and trends in the region, and also touched on how the current volatility is impacting the Midwestern multifamily sector.
What are the hottest markets for multifamily development in the Midwest today and what makes them so popular among developers?
Vogelsmeier: The ones that rise to the top are Indianapolis; Cincinnati; Columbus, Ohio; Nashville, Tenn.; and Kansas City, Mo.—and I’m not just saying that because most of those are Milhaus markets. Economic diversity and growth are big drivers of why these cities are so successful. Young people are moving to these cities, and they’re ranked in top publications as some of the best places to live for tech jobs, to raise families, as well as for foodies and you name it. The downtowns are more vibrant than they were 10 years ago, and markets such as Indianapolis in particular have proved you can have the amenities, walkability and unique culture of a big city in smaller markets and at a more affordable price.
Are Midwestern markets more resilient in the face of adversity than markets in other regions of the country? Why?
Vogelsmeier: Yes, Midwestern markets are generally more resilient, especially during periods of economic uncertainty. Unemployment tends to stay lower in secondary Midwestern markets compared to both the national average and larger gateway markets, which creates a lot more stability, including in the multifamily space. The cost of doing business here is also more affordable, which plays a large part in driving both job and household growth. These items collectively make the Midwest an attractive place for new investment and development.
In September, you broke ground on your 10th project in the Kansas City metropolitan area. What is fueling your expansion in this area?
Vogelsmeier: We can tie this back to the points above: Kansas City is economically diverse, boasts a low cost of doing business, and is comparatively a more affordable place to live. More specifically, the city and larger metro area have done a fantastic job in making key public investments and supporting quality new developments that make Kansas City a unique place to live, work and visit. With the new airport, we will see more business travel and convention traffic which will drive continued investments in infrastructure and the urban core. Kansas City is also uniquely positioned in ‘Big 12 Country’ to draw talent, given its proximity to so many major universities.
Furtherly, Kansas City is drawing new talent on a national level thanks to major employers such as Cerner (Oracle), H&R Block, Burns & McDonnell, the Federal Government and more. These are steady economic forces that all make the Kansas metro a dynamic market.
Are there any particular development trends you’re seeing in the Midwest multifamily market?
Vogelsmeier: The biggest trend in the last 12 to 24 months has been on densification, particularly in suburban locations. We’re seeing this in a lot of Midwestern markets that are capitalizing on more flexible remote work. Around Indianapolis, for example, suburban cities such as Carmel, Zionsville and Fishers, Ind., are noticeably investing in their downtowns. Their place-based development is giving people new options for entertainment and alternate housing options that really mimic larger cities’ downtowns.
In a 2020 interview, you told MHN that the biggest challenge you had to overcome after the onset of the pandemic was the unknown. Please expand on the top challenges you’re facing today as a multifamily developer in the Midwest.
Vogelsmeier: The challenge is still the unknown, but today it’s a different type of unknown. Back then it was on a global scale, something the whole world was dealing with. Now it’s tied to economic stability. Capital providers are more hesitant—people are worried about heading into a recession, if we’re not in one already, and are looking at safer investment alternatives. This hesitancy, along with exorbitantly high construction costs, means a lot of projects aren’t moving forward. With the country’s undersupply of housing and the economic growth we are still seeing in many markets, we’re working hard to navigate the current climate and find ways to get deals closed and under construction.
Please tell us more about your development plans for this year. What projects will you prioritize?
Vogelsmeier: We have a good mix of projects in the Sun Belt and Midwest that we hope to start in 2023—largely dependent on the previous answer, of course. We’re prioritizing sound underwriting and quality design to deliver products that are unique to each space and satisfy unmet resident demands in what we believe to be high-growth submarkets.
What are your predictions for development activity in the Midwest going forward? To what extent do you expect the looming recession to impact it?
Vogelsmeier: If I knew the answer to that, I would be in a much different place. No one wants to predict, but a slowdown is inevitable. We’re already seeing it in the volume of Q1 projects that aren’t moving forward. Once we get into the spring ,when we’d expect to see higher leasing traffic, we’ll get a better idea about where consumer confidence is as that will be key in driving up both occupancy and rents. If both of these metrics rebound this spring, it will give people more confidence to keep projects going.
Would you like to add anything else about multifamily development in the Midwest?
Vogelsmeier: The Midwest has been successful because of our roll-up-your-sleeves attitude at all levels of development. Developers, municipalities, as well as public and private stakeholders alike think more creatively about development in the Midwest. You don’t find this in a lot of major gateway cities, and it’s an important element of why these cities, and in turn Milhaus, have seen so much growth over the last decade. In Midwestern cities, we have the mentality to keep moving forward despite economic uncertainty.