🔒Despite hot housing market, Greater Hartford apartment boom rolls on

Across from Dunkin’ Donuts Park in Hartford’s Downtown North neighborhood, developer Randy Salvatore began building 270 new apartments last fall and he’s already making plans for the next batch of a few hundred more.

Salvatore, CEO of Stamford-based RMS Cos., brushes aside any suggestion that the COVID-19 pandemic — which fueled significant demand for single-family homes — has made multifamily property investment more tenuous.

“I remain as bullish as ever about the long-term prospects for Hartford and this development,” Salvatore said in a recent interview. “Time is the most prized possession for a lot of people. They work really hard and they don’t want to be doing yard work on the weekends and going to Home Depot to buy a part to repair the toilet. They want to be able to just enjoy themselves.”

For those and other reasons, even if it means giving up on a spacious private backyard, experts say apartment living is here to stay, and the boom in new multifamily developments in Greater Hartford is showing no signs of letting up.

Major newly constructed or proposed apartment projects have been springing up across the region in recent months, whether it’s in the suburbs of Farmington and Bloomfield or the cities of Hartford and New Britain, a sign that developers still have significant appetites for new market-rate and highly-amenitized rental units.

According to CoStar, 2020 saw the net delivery of nearly 1,100 new apartment units in the Greater Hartford market. It’s not an earth-shattering number; it’s down from 1,300 units in 2019, but experts say the fact the region nearly matched the trailing five-year average number of new units during the pandemic is a sign of the sector’s strength and resilience. Meanwhile, vacancy rates remain in the single digits overall.

“Even as new units are built, the overall occupancy rate in and around Greater Hartford is terrific — they are absorbed quickly,” said Victor Nolletti, an executive managing director at multifamily brokerage and advisory firm Marcus & Millichap’s New Haven office. “Clearly the demand remains.”

Salvatore says he welcomes the competition.

“I think Hartford needs more housing, and more housing will bring more restaurants and better retail options, which will bring more housing,” he said. “I think that’s what creates vibrant cities. The more the merrier.”

Things seemed much more dire in the early months of the pandemic, said Jeffrey Tesch, CEO of South Windsor-based multifamily lender RCN Capital.

“A year ago I would have said multifamily is in trouble, but it just didn’t happen,” Tesch said. “It just goes to show you the real lack of availability in housing choices. There just aren’t a lot of empty units in general.”

Michael Freimuth, executive director of the Capital Region Development Authority (CRDA), which finances market-rate apartments mostly in the city said he has wondered about when demand for new apartments might slow, but he hasn’t seen any signs of that yet.

“We put out about 2,200 units [in downtown Hartford] over the past eight years and they’re running at about 90% occupancy,” Freimuth said. “I think we’re able to comfortably absorb 300 to 500 units a year, which has generally been our building pattern.”

Investors seek stable yields

While the pandemic has not caused multifamily investors to lose confidence, it has had a greater effect on other real estate sectors.

Jeffrey Dunne, a vice chairman at realty brokerage firm CBRE, whose team recently brokered a nearly $35 million sale of the 180-unit Alvista Willow Brook apartments in Meriden to an experienced local operator, said investors are increasingly flocking to multifamily, following turbulence in retail and office space.

“There are more dollars chasing deals coupled with some of the lowest interest rates in the past 50 years,” Dunne said. “Apartments are the product of choice for many investors.”

Out-of-market investors continue to sniff around Connecticut, drawn by the allure of potentially higher returns, or “cap rates,” compared to more competitive real estate markets.

“They hunt in secondary or tertiary markets for greater yield,” said Dunne, who predicts a short-term slowdown in construction activity due to price spikes in materials costs over the past year.

Demographics, demand

Connecticut is not known for booming population and job growth, so continued investment in building new apartments can seem like a bit of a head-scratcher.

Even seasoned developers admit to not fully understanding each individual element of demand for new units, which can vary by location, but that’s not a major concern so long as it keeps up.

“People are moving out of older product so you would think the older product would have a large vacancy rate, but that’s the thing: it doesn’t,” said Avner Krohn of New Britain-based Jasko Development, which has 700 apartments — not all of them yet publicly disclosed — in the planning or construction pipeline, including an 111-unit project in Bloomfield that broke ground a few weeks ago. “There is definitely some variable I don’t think anyone can put a definite finger on.”

When it comes to greater construction activity in recent years, developers are simply playing catch-up from a lengthy period in which building multifamily properties fell out of favor, according to Donald Poland, managing director of urban planning at East Hartford-based Goman+York.

Poland, who has advised area planning boards and developers alike for nearly 20 years, said multifamily development activity plummeted after the 1990-1991 recession, as some blamed a recent condo boom at the time for economic woes.

From then until after the Great Recession of 2007-2009, development activity was slow. For example, from 2004 to 2011, multifamily units represented just one-quarter of total building permits issued in Connecticut, according to U.S. Census data.

However, apartment development turned the corner after that, with activity nearly doubling. Between 2012 and 2020, permits for multifamily units have averaged 47% of total permits issued in Connecticut.

“The fact that there was an aversion to multifamily for 20 years means the majority of the existing stock is pre-1990,” Poland said.

So those older developments face competition from newer rental communities with open floor plans and more modern amenities.

“The older, tired product starts becoming functionally obsolete and is falling out of the marketplace,” Poland said.

Amenities are a major focus for any new market rate apartments, developers say. For example, Salvatore said his new Hartford apartments will have a pool, modern exercise and yoga facility with interactive equipment including a golf and multi-sports simulator, bowling alley, and rooftop deck that will overlook Dunkin’ Donuts Park with bleacher seating.

It will also have coworking space for remote-working residents.

Salvatore said he’s targeting Millennials and empty nesters as residents.

“For younger demographics it’s all about quality of life,” he said. “They will pay for that quality of life.”

The newer apartment offerings are putting pressure on the owners of middle-aged and older properties to try to keep pace with renovations, said CRDA’s Freimuth.

“There’s been a new birth of product out there that is of a higher grade and that’s forcing those buildings that have grown tired to pick it up a notch, and it’s also causing a migration to a better product,” Freimuth said.

He believes some of the demand for new apartments in Hartford will come from suburban residents who didn’t like what housing choices were previously available in the city.

“The urban apartment downtown space just didn’t see the product, so people were moving out into the suburbs, a garden apartment off the highway someplace,” he said.

There are other factors driving demand, including formation of new households by young adults fresh out of college with their first job as well as some modest population growth.

Rental demand is also coming from Baby Boomer empty nesters.

Some renters choose to rent, but many don’t have enough savings to purchase a house, even if they want one. Homeownership has been declining in recent years in Connecticut, and booming demand and low inventory during the pandemic have only placed ownership further out of reach.

Given those various factors, Poland sees the pipeline of multifamily projects remaining pretty steady for a while.

“My feeling going forward is that I think we’re going to see probably at least five to 10 years of moderate demand or production of multifamily units,” he said.