City Club Apartments | Could Detroit soon have too many new apartments?

2/19/2017 Could Detroit soon have too many new apartments?

After several years of apartment scarcity in and around downtown Detroit , supply is starting to catch up with demand, prompting some building owners to offer rent deals and to shorten waiting lists.

Hundreds of new market-rate rentals have opened in the city's downtown and Midtown since last fall with hundreds more planned to open this spring.

Until recently, hunting for apartments in greater downtown Detroit often involved joining waiting lists because new developments sometimes leased out within days of opening. But the latest batch of newly opened buildings show significant vacancies several months after move-in day. Meanwhile, some popular older buildings that once had months-long waiting lists now have a handful of vacancies.

This deceleration raises questions about the depth of the residential market in Detroit and the trajectory of the city's continuing revival.

Local development experts point to the average 98% occupancy rate last year for residential buildings in greater downtown and say the inventory deluge doesn't mean that the housing market is getting saturated or that the surge in new construction since 2013 was all a bubble.

Rather, the residential market could be entering a new phase: one in which the arrival of more new amenities such as restaurants, retail stores, the coming Little Caesars Arena and QLINE streetcar service will, in the near future, make Detroit an even more sought-after place to live.

"Demand begets supply initially. But in an upcycle, it's also true that supply begets more demand," said David Di Rita , a partner with the Roxbury Group , a Detroit -based development firm and consulting group behind several of the newest apartment projects "As you begin to satisfy that supply you create a viable market -- which we clearly have already done down here -- and you get more entrants into the market, people saying 'I want to live downtown.'"

For apartment-seekers, the recent flood of new apartments means they have more choices than ever in leasing rates and locations and more buildings offering a wide array of amenities, which some say Detroit has been lacking. It also could lead to more for-sale condos, which are still in scarce supply.

"I think Detroit has been slow to build the type of product with all of these amenities that you might see in markets like Boston ," said Sue Mosey , executive director of Midtown Detroit Inc.

Several of the buildings that have just opened or will soon open are chasing high-earning renters who can afford to spend $1,300 to $1,500 a month for a one-bedroom residence or $2,100 -plus for a two-bedroom (not including parking and utilities).

A prime example of the explosion in new housing options is The Scott at Brush Park , 3150 Woodward Ave. in Midtown, which opened in December as perhaps the most amenity-filled residential building in the city. There is 24-hour concierge service, a swimming pool and year-round hot tub, an extensive gym, a library, a dog grooming salon, an on-site "lifestyle curator" and a sunlight-filled residents' lounge reminiscent of a high-end boutique hotel.

The building's 199 apartments were about 55% leased earlier this month, with many two-bedroom units still available for about $2,000 to $2,600 per month. Prices top out about $2,846 for one of the remaining three-bedroom units. (The $949 -per-month studios were first to lease.)

"This whole concept is to give you that resort-style living," said property general manager Wendy Barnabei .

Even for current residents who wish to stay where they are, there could be positive effects from the flood of new apartments in their neighborhood.

That is partly because the added inventory might relieve some of the upward pressure on rent prices across greater downtown that, in recent years, has forced some longtime tenants to move because they couldn't afford the new market rates.

Mosey said another benefit for existing residents is that more owners of older, income-restricted buildings that house seniors or low- and middle-income tenants may feel compelled to make improvements and spruce things up because of all the new buildings and higher area rents. That is already happening in Midtown, she said.

"No one wants to invest when there's nothing going on and there's no appreciation in anything," she said.

Half-off deal

A few deals are springing up amid the flood of new apartments.

The Briggs Houze, 114 W. Adams in downtown, opened 104 apartments in November of what will be an eventual 116 units following a gut renovation of the old Hotel Briggs . The asking prices range from $870 to $979 a month for studio units and $1,150 to $1,564 a month for one-bedroom units. The building's two-bedroom penthouses are expected to be ready in coming weeks.

Building manager Keeley Sanders said earlier this month there were still 45 one-bedroom units and studios available for immediate leasing -- not including the dozen apartments that are still to come once floors 17 and 18 are finished.

To help fill its empty apartments, Briggs Houze last month began advertising a half-off deal for the first month's rent. The monthly parking space fee also was lowered to $150 a month from $200 .

"Right now it's really the slowest time of year, and if it's going to make the difference between coming here or going to one of our competitors, then we're going to take that loss to get our building filled," Sanders said of the half-off deal.

Some wait lists grow shorter

Wait lists are shorter at some buildings now that prospective tenants have more options.

The fall 2012 opening of the redeveloped Broderick Tower in downtown near Comerica Park was a watershed for downtown Detroit's residential market. The 124-unit building leased out almost immediately and demonstrated the roaring demand for higher-rent apartments. There was a months-long wait list.

Today the iconic 34-story building remains mostly full, although there are five vacant two-bedroom apartments and the wait list is down to a single person, staff there said. The available two-bedrooms are asking between $1,990 a month and $2,025 to $2,225 a month.

To be sure, wait lists at some buildings are as long as ever.

Scott Lowell said he still gets e-mail inquiries nearly every day about his newly redone Forest Arms apartments in Midtown near Wayne State University . But all 70 units are leased. The building opened last May with rents ranging from $900 to $1,100 a month for the one-bedroom units.

"Demand still seems strong," Lowell said.

From Section 8 to $1,225 a month

Some older apartment buildings now feature new and much higher rent levels.

Downtown's former Town Apartments , 1511 First St. , was renovated, rebranded and reopened last October as the Town Residences.

The building previously housed lower-income residents, including those on Section 8 vouchers, before it was sold in 2014 to Denver -based Triton Properties . The sale price wasn't disclosed, although a now-defunct webpage for the seller, Ivey Property Management Group , said it sold the formerly "distressed property" for more than $6 million .

Triton then ordered everyone out of the building as the property underwent extensive renovations to become an all-market-rate residential building.

"They had severe plumbing repairs and they were shutting off the water a lot, so it was in the best interests of the residents to move them out," said Amy Timbers , vice president of property management for Rock Companies, which is managing Town Residences for Triton.

The new rental rates at Town Residences are $725 to $905 a month for studio apartments and $1,130 to $1,225 for one-bedrooms. Nearby parking options are $100 a month for a surface lot or $200 for a covered garage.

Floor-by-floor renovations are still ongoing and about 130 of the eventual 312 apartments are now open; the rest should all be done by summer, according to property manager Holly Powell .

The first several floors of apartments leased fast, Powell said, a phenomenon she attributes to Town Residences' attractive rent prices compared with other new or newly redone buildings in and around downtown. There is still significant availability on the building's newest-to-open floor of 26 apartments.

"The one thing that worked against us is that we started getting into the winter months and not a lot of people like to move in the winter," Timbers said. "But I'm assuming that once we get into March, they're going to go really really fast."

Powell said former residents from the building's Town Apartments era have visited to check out the new renovations, although few of them are signing leases.

"They love what we've done with the building, but it's definitely a different income bracket," Powell said. "Several of them have come by and they basically have said, 'Oh, I remember when this apartment was $325 . Is it the same amount?' And I'm like, no, it's not that anymore."

Gentrified out?

Big rent increases also hit 51 lower and middle-income tenants at the Renaissance City Club Apartments at 555 Brush St. in downtown, formerly known as the Millender Center. They were notified in January of last year that their rent-subsidized apartments in the 338-unit building would switch to market rates after Dec. 31 .

The subsidies stemmed from a 1980s development agreement with the city that finally ended once the building's tax-free bonds were paid off.

Toni Washington , 70, who lived in the building for 22 years, was among those in the group who decided to move and seek more affordable accommodations. Her rent of $626 a month for a one-bedroom apartment was set to nearly double to $1,205 , plus a new utility charge. She now lives in a seniors community in Midtown.

In an interview prior to leaving Renaissance City, Washington said the real estate firm that bought the building back in 2013, now known as City Club Apartments , set about renovating and redecorating. New flat-panel TVs were mounted on walls and rock and hip-hop music began playing in the lobby and elevators. A former penthouse apartment was turned into a snazzy common area.

"You can tell that they've really done stuff for the younger generation," she said.

Jonathan Holtzman , CEO of City Club Apartments , said he sympathizes with tenants who had to move before the new rates kicked in, which he described as a necessary business decision. Some of those in the subsidized units did opt to stay in the building and pay market rates, he said.

"We bought the building based on the idea that the program was going to end," Holtzman said in an interview last year. "We invested money based on the program ending. Our lenders knew the program would come to an end."

Micros on deck

Detroit developers have found that the smallest and cheapest studio apartments in new market-rate buildings are often the first to lease out. That is an encouraging trend for a newly constructed "micro lofts" building in downtown called 28 Grand, located on the site of a former strip club at 28 W. Grand River . in the Capitol Park district.

Developed by Dan Gilbert's Bedrock Detroit, the 13-story building is set to open this summer with 218 apartments that average a mere 260 square-feet in size, or smaller than a one-car garage.

But what residents give up in personal space, they gain in building amenities: a large living room, full-scale kitchen, a library and an outdoor terrace with a fire pit and grill.

Rent prices for 28 Grand's market-rate units have yet to be announced. The building's 85 income-restricted units are expected to be about $700 per month.

The micro-lofts project is the first of its kind in Detroit and could have strong appeal to young people who really desire to live on their own in central downtown with nice amenities, but can't yet afford $1,300 per month for a one-bedroom apartment.

"It's sort of an all-inclusive living experience," said Jamie Witherspoon , a project architect. "The units come fully furnished and all of the utilities, including your Internet , come with the rent. You can sort of bring your backpack and walk right in."

Hundreds more to come

The depth of greater downtown's upscale market will face a big test this spring when a wave of about 460 new residences arrives with the opening of the Orleans Landing project on the east riverfront and DuCharme Place in Lafayette Park .

Both developments will be laden with amenities, including swimming pools, fitness centers and community lounges. Rent prices at Orleans Landing , which includes one- and two-bedroom apartments and townhouses, will be about $1,450 per month for one-bedrooms and around $3,200 per month for a two-bedroom townhouse, according to the project's website.

DuCharme Place is expected to charge about $1,000 for studio apartments, $1,350 for its one-bedroom units and $1,700 for two-bedroom rentals, according to a downtown-area market study. Representatives for DuCharme Place and Orleans Landing did not respond to Free Press inquiries.

Another significant project, the Plaza, 3800 Woodward in Midtown near Detroit Medical Center , is also slated to open this spring and will bring 72 more market-rate apartments. The Roxbury Group has done a full renovation of the old 12-story office building, which was commonly known as the "Hammer-and-Nail" building for a since-removed neon design near the top of the tower of a hammer hitting a nail -- a tribute to a local carpenters' union that had offices inside.

Di Rita said rents at the Plaza could start about $1,000 per month and go up to about $2,500 or $2,600 -- not including the lavish penthouses. The neon hammer and nail will also reappear at some point. "It will make a return, that's all I'm going to tell you," Di Rita said jokingly, "and it will not be on the roof."

Duggan sees no end to boom

One of the newest apartment buildings, the Griswold at 150 Michigan Ave. , sits atop the parking garage beside the Westin Book Cadillac . The new 80-unit development near downtown's Capitol Park was initially proposed as condos a decade ago, but was one of many such plans that unraveled when the recession hit.

Developed by Detroit -based Roxbury Group , there are one-, two-, and three-bedroom units with market-rate prices starting at $1,500 a month and topping out at $3,700 . Twenty percent of the residences are income-restricted and set aside as affordable, renting for about $1,000 a month. Just under half of all the apartments in the $24-million building are now leased, officials said.

"The reality is that high-rise construction is expensive," said Di Rita , the Roxbury Group principal, "and to do it right and to do it in this market requires that you get a price point that supports the investment."

Detroit Mayor Mike Duggan helped cut the ribbon for the five-story building on Feb. 9 . During his tour, the mayor remarked on the spectacular views from the apartments' floor-to-ceiling windows and praised the creativity of the developer in finding a unique use for vertical space.

Duggan said he believes there is enough demand to fill the thousands of new Detroit apartments that have just opened and are scheduled to open in the future, especially as more businesses move or return to the city. He also emphasized the average 98% occupancy rate last year for apartment buildings in greater downtown, "so we're nowhere close to saturation."

"People are moving back into Detroit faster than we can build places for them," Duggan said. "I've been working downtown since 1981 and I watched for decades as people moved out and these buildings emptied. So to see them filled and to see them have to build on top of existing buildings is really exciting."

Kelly Herbert , 47, is among the Griswold's new Detroit residents. She said she had been looking at upscale apartments in downtown for more than a year before she signed her lease for a new one-bedroom overlooking Capitol Park . She works downtown in the hospitality business and used to commute from Dearborn .

"I'm never anywhere else except downtown Detroit , so it's really awesome to be down here," she said.

Contact JC Reindl: 313-222-6631 or jcreindl@freepress.com . Follow him on Twitter @JCReindl.

Indications supply could be catching up with demand:

* The latest rental buildings aren't leasing out as fast as some earlier projects.

* Hundreds more new apartments are about to hit the market this spring.

* Wait lists at some buildings are down.

Indications overall demand is still strong:

* Occupancy rate averaged 98% last year in greater downtown residential buildings.

* Newest buildings are steadily filling vacancies -- just not wicked fast.

* Some buildings with modest rent in highly desired areas still booked solid.

* Little Caesars Arena and QLINE streetcar service have yet to open; both could spike demand.

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