At the start of the new millennium, condo development in Minneapolis was at an all-time high. But the aggressive development was unsustainable, and by 2007, condos were sitting empty and high-profile developments were canceled.
“Condo projects were really hot for a while, and then they suddenly just fell through the floor,” said Minneapolis city planner Haila Maze. “The market just tanked.”
The city’s condo boom and bust is still on the minds of many developers, Maze said, including those involved in the surge of student housing around the University of Minnesota campus.
As development speeds up and vacancy rates remain low, experts said the prospect of overbuilding around the University is real but unpredictable.
“We are usually quite aware of what’s on the horizon as far as assembling parcels or the movement by developers,” Marcy-Holmes Neighborhood Association President Doug Carlson said. “[But] it’s hard for me to predict the coming years of additional development.”
A deeper market
According to Carlson and prolific area developer Kelly Doran, the roughly 15 student housing projects that have been built or proposed since 2010 have more than filled the deficit in off-campus housing identified by the University District Alliance six years ago.
But vacancy rates have remained below 2 percent — effectively zero, according to Maze — leading Doran and other developers to believe the demand for upscale student housing is greater than anyone suspected.
“We’re cautiously optimistic that the market will support all of these projects, but there is a breaking point,” Doran said. “At this juncture no one’s really seems to know what that is.”
Demand is difficult to quantify because while enrollment isn’t growing significantly, Doran said, there are fewer students commuting to campus than before.
“How do you predict that? It has to be very hard,” Maze said. “It’s not so much about just counting people but registering mentality.”
Market research is difficult around the University, she said, because students’ actual spending power is often disproportionate to their income.
“The poverty rate is huge around the University, but everyone knows it’s not real. Not in the sense of institutionalized long-term poverty, it’s just that students don’t make a lot of money,” she said. “It does odd things to all of the economic calculations.”
Doran also said the increased number of international students on campus has changed the market for luxury housing.
Dick Gilyard, planning committee chair for the Prospect Park East River Road Neighborhood Association, said more parents are willing to pay for upscale apartments than he suspected.
“The market for this kind of housing is deeper than many of us thought,” he said.
“A feeding frenzy”
David Graham, the area architect who helped design Dinnaken Properties, Sydney Hall and other apartments around campus, said he’s wary of making any assumptions about the housing market.
“It’s turning into a bit of a feeding frenzy,” he said. “We’re overly optimistic about the economy and the student body’s ability to absorb and pay for all of this.”
Gilyard said the developers he has interacted with are aware of the threat of oversaturating the area, but it doesn’t deter building.
“Everybody thinks the same: It’s going to fill up, but there’s room for their one more project,” Gilyard said.
“Too often they’re like lemmings: As long as they can get it financed, they’re going to build it.”
Maze said the topic of overbuilding comes up with every new development around the University. Although the market shows no sign of slowing down, the industry’s lack of agility could put developers in a tough spot, she said.
“Overbuilding becomes a real reality when you realize that a project takes often a couple years from start to finish,” she said. “The market can seem fantastic when you start, but by the end it stinks.”
“A saturation point”
With more than 800 apartment units projected to open in 2014 alone, Graham stressed that developers should slow down before looking into more continued aggressive development.
“I’m amazed at how much is already being absorbed, and with the amount of projects that I’m aware of coming online, I think we’re reaching a saturation point,” he said. “We should take some time to absorb what we’ve got and see where we are.”
Doran is in the early stages of a new project, The Bridges, across from FloCo Fusion. He’s predicting the project will be roughly the same size as his other developments at around 150 units.
Carlson said the Marcy-Holmes Neighborhood Association is not concerned with overbuilding for the time being and hopes for much higher density on the site.
“I think initially they were talking [about] five or six stories,” he said. “We’d like to see maybe even double that amount.”
Graham said as development accelerates, he’s worried about the impact of large, 330-unit developments like WaHu student housing and the UTEC project.
“What I’m concerned about is these mega projects with 750 beds,” he said. “I mean, it’s almost like you’re injecting drugs into your system, it’s just too much.”
The student perspective
Julia Wilson used to live in Stadium Village. But when she returned from a trip abroad, the Asian language and literature senior found new apartment buildings had sprouted up in her old neighborhood and her roommate had moved to Northeast Minneapolis to find more affordable housing.
“They pushed me out of the heart of campus,” Wilson said. “How do they find the space to build these major complexes? I don’t get it.”
Wilson speculated that developers have been able to fill the new buildings with wealthy international students, echoing developers’ theories.
Michael Salerno, an architecture sophomore, said he has seen the same housing trend in his native Madison, Wis., and doesn’t see it slowing down.
“As long as they’re filling them, there’s no way there’s too many,” he said
After only a couple of months on campus, business freshman Andrew Abraham said he’s impressed with the apartments, especially FloCo Fusion.
“I think they’re really nice, really elite,” he said. “I’ll probably look into getting one.”
A race to the center
Daniel Oberpriller, developer of WaHu, said after 2014 he will reassess his development plan with more emphasis on location.
Taking cues from more mature luxury student housing markets in Texas and Arizona, Oberpriller said he will become more selective with the sites he develops because housing closer to campus will be more resistant to a lull in the market.
“It’s a race to the center,” he said.
As the influx of students slows, Oberpriller said it will be important for the apartments to be flexibly designed, so non-students would be comfortable there as well.
“It’s going to be really interesting in 2014,” he said. “I think we’re going to be OK, but it’s going to be interesting. How many more can [the market] handle after that? I don’t know.”