HEARTLAND SNAPSHOT, MARCH 2009

Minneapolis/St. Paul Multifamily Market

In the midst of this sink-or-swim economic environment, the Minneapolis/St. Paul multifamily market is keeping its head above water. Although an air of uncertainty has left apartment sales stagnant, the region’s multifamily sector is faring relatively well when compared to other investment products, such as retail, office and warehouse.

Additionally, the area’s apartment market is faring much better than many other major metro areas. The market’s endurance can be attributed to high price tags on land as a result of the city’s condo boom. Because property prices were so high, apartments were not overbuilt in the area unlike many other struggling cities.

“Investment sales are slow right now [as] people are trying to figure out what is going to happen,” explains Kevin Doyle, vice president of Minneapolis-based NAI Welsh. “But from a performance standpoint, the market is struggling along.”

Nevertheless, despite the city’s resilience, 2009 is already proving to be a tough year. In January, Best Buy laid off an undisclosed number of staff members from its 4,000-employee headquarters office in Richfield, Minnesota. Additionally, Target announced plans to lay off 1,000 workers from its Minneapolis headquarters. Multifamily fundamentals are undoubtedly shaped by unemployment rates, so such moves may negatively impact the local market.

“If I was to own anywhere, I would want the [Class] B and C buildings in south Minneapolis and the Uptown area, anything close to downtown on the bus line or light rail,” Doyle says. “The play right now is to take the C buildings and jazz them up a little bit, redo the units, and you can get better tenants and better rents.”

Doyle and senior associate of NAI Welsh, Ryan Dunlay, agree that Class A communities are getting hit first. Rising vacancies in Class A apartments are making it more difficult to sell these properties. In addition to vacancy issues, the Minneapolis/St. Paul area has not been able to evade financing constraints that have plagued the industry. Without financing, deals are simply unable to come to fruition.

“There is a major disconnect between sellers and buyers today,” Dunlay explains. “[But] there is still a lot of money out there, and there are a lot of investors, but a lot of them are sitting on their hands right now just waiting to see what is going to happen.”

— Ashley Ball

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