Kevin Dillon Senior Investment Advisor Hendricks & Partners

The Lansing multifamily market has seen new development primarily in the student housing market for Michigan State University and for luxury apartment communities in the Lansing metropolitan statistical area (MSA). New real estate development and growth in Lansing has been on the east side of town in East Lansing, Okemos and Meridian Township, and on the west side of town along Saginaw Highway and Interstate 96.

The multifamily development for Ann Arbor has been primarily for Class A luxury apartment communities, because it is a high-income area with a strong apartment rental market. The Battle Creek multifamily market has seen little new development because of limited population or job growth.

Recent multifamily student developments include Sterling University Court in the Lansing market, and the Villages at Chandler Crossings and Melrose Apartments in East Lansing. Westbury Lake, also in East Lansing, is a luxury property. The student developments rent bedrooms to students who share a common living space. Each apartment has three or four bedrooms. “This is changing the outlook of the student apartment market and creating some vacancies for the smaller owners and operators,” says Kevin Dillon, senior investment advisor with Birmingham, Michigan-based Hendricks & Partners. However, the properties are further away from campus than most other student properties.

Currently, there are two new, non-student developments: Tammany on the Ponds, a Class B conventional property, and the Hunt Club Apartments, which has a tax credit and rent subsidy tied to the property. Other small Class A and Class B+ properties are being built throughout the market, with approximately 700 units coming online in the next 18 months to 24 months.

The majority of development taking place in the Lansing market is spurred by the recent capital investments of General Motors Corporation (GM) to renovate its downtown factory at Grand River. This factory is producing the new Cadillac sport utility vehicle in fall 2003, as well as handling the manufacturing of the Monte Carlo and the CTS Sport Sedan. GM has also acquired substantial land in Delphi Township on the southwest side of the town off of Interstate 96.

The Lansing market has continued to maintain one of the lowest unemployment rates in the state because of its diverse employment base, which features primary employers such as the state government, Michigan State University, GM and Meijers Thrifty Acres.

New apartment developers in the Lansing market have been mainly interested in student apartment communities such as the Villages at Chandler Crossings and the Sterling University Court Apartments, though this may be changing. “Lansing has experienced new developments outside of the student apartment communities, but it is anticipated that developers will be more aggressive as GM starts the construction of its new facility,” Dillon says.

Vacancy rates in the Lansing market vary depending on the specific submarkets within the MSA. The student apartment occupancy rate during the school year ranges between 95 percent and 98 percent for the primary locations, and between 88 percent and 92 percent for the secondary locations. However, new developments have caused the student market to adjust, and it might average 93 percent throughout the school year. The occupancy rate for the conventional apartment market throughout the Lansing MSA is between 88 percent and 92 percent. These occupancies have adjusted downward due to the single family home purchases.

The rental rates for the Lansing market range from $500 per month for a one-bedroom apartment to $1,350 per month for a three-bedroom townhome with a garage.

In Ann Arbor, Northwestern Mutual has added 180 units to Lake Village on Main Street. “The city has been slow to allow any new multifamily development due to lack of available vacant land and a healthy apartment inventory,” Dillon says.

While Ann Arbor has not seen new developers in the area in a few years, it is a high-income, high-growth area with a strong diversified employment base. The occupancy rate in Ann Arbor has averaged between 90 percent and 92 percent during the past 2 years, which is due to the economic downturn. Ann Arbor apartment rents for a one-bedroom unit are as low as $500 per month and climb as high as $1,800 per month for a three-bedroom townhome with an attached garage.

“The Ann Arbor market has a strong middle to upper-middle income employment base, and it will continue to grow in that respect,” Dillon says. “It is a highly educated market with high incomes, and a strong tenant and employment base for various types of industries.” The primary areas for growth are in the computer and service industries, the University of Michigan, and the medical industry — including the University of Michigan Medical Center.

The Battle Creek market is a much smaller market that is primarily driven by the Kellogg Corporation. Battle Creek has an aviation school with Western Michigan University at Fort Custer. Multifamily development has been slow to come online in Battle Creek because the population is remaining stable.

The national economic trends have adjusted the appreciation of property values due to increased vacancy rates in most of these markets, and it will continue to do so. However, Lansing seems to be insulated from most of the economic trends because of the growing student population, the viability of Michigan State University, the growing state government and the future growth of GM. Once the national economy recovers, Ann Arbor and Battle Creek should begin strong recoveries as well.

©2003 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.