HEARTLAND SNAPSHOT, NOVEMBER 2006

Cincinnati Multifamily Market

Gladys Risma, Senior Associate, Colliers Turley Martin Tucker

Similar to its counterparts in the Heartland, Cincinnati’s multifamily market remains stable, with vacancies in the single digits and falling. Construction and absorption typically change in lockstep, with absorption keeping the market in balance. The multifamily market’s even keel has drawn interest from outside investors looking for better yields. As the consolidation of large public and private real estate investment groups continues, many secondary markets such as Cincinnati are garnering attention as investors look for better yields.

On the development side, the resurgence and revitalization of the central business district (CBD) continues to draw interest from traditional multifamily developers, as well as newcomers looking at condo conversions and mixed-use projects. These developers are afforded flexibility, with price points that appeal to a diverse clientele.  Properties can remain, or be built as, apartments, or developers and investors can target upscale consumers with new condos or conversions that offer significant upside. Downtown condos typically garner a 25 percent premium per square foot compared to suburban luxury homes.

The urban appeal has drawn interest from several new and established developers. Among the newcomers are Chicago-based City Lights Developers; Louisville, Ky.-based Jefferson Development; Covington, Ky.-based Corporex; and Atlanta-based AIG Global Real Estate. Locally based Carter Real Estate is the project manager for The Banks, working in partnership AIG, the project’s developer. Joshua One and a partnership between 3CDC and Over-the-Rhine Community Housing are also active local developers. Miller-Valentine also has plans for a mixed-use development.

In the downtown area, new and infill developments are aimed at two core audiences: young professionals and empty nesters that want to experience the urban lifestyle.

Looking ahead, the downtown and riverfront areas along the Ohio River will remain on developers’ radar screens. With 5,200 multifamily units either built, on the drawing board or in the proposal stage, the riverfront and downtown population will double by 2010. Three major mixed-use developments are front and center in this movement.

On the Ohio side of the river, the 15-acre project called The Banks will feature 1,000 residential units, and is centrally located on the banks of the Ohio River by the Great American Ball Park, home of the Cincinnati Reds; Paul Brown Stadium, home of the Cincinnati Bengals; and the Underground Freedom Center. On the Kentucky side of the river, Corporex is following its success with a mixed-use project in Denver and applying it in its backyard. Called Ovation, the 13-acre, $600 million development will include 900 residential units.

Miller-Valentine Group also has proposed One River Plaza. Two towers are planned for this mixed-use development in the heart of the CBD. When completed, it will include 240 residential units, office space and 30,000 square feet of retail.

The University of Cincinnati has been a springboard for development, with its foundation seeding several corporations. This funding and the university’s appeal have generated more than $1 billion in urban development. Chief among these projects have been several communities, including Stratford Heights, a 700-bed student housing project; McMillan Manor, a 104-unit building; and Stetson Square, a 200-unit project.

Developers and investors are working with improving fundamentals in the Queen City’s multifamily arena. Rent growth should inch up 1 to 2 percent this year. Plus, owners are reducing concessions, with free rent dropping from one month to just a half of a month. And the pace of expenses are slowing for owners.

Overall, vacancy is at 8.24 percent, but it should soon drop to its historical range of 5 to 7 percent. Rents vary, but are highest in the tightest markets. The midtown and downtown markets have the highest rents at 95 cents per square foot, and the Midtown area has the area’s lowest vacancy rate at just more than 5 percent. Rents in the remainder of the market average 80 cents per square foot.

Rising interest rates are increasing demand for rental housing as higher mortgage payments make it more appealing and economical to rent rather than buy. This increasing demand gives landlords more pricing power, with rents increasing slowly and concessions now limited.

— Gladys Risma specializes in multifamily properties investments as a senior associate for Colliers Turley Martin Tucker in Cincinnati.

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