Caroline Strek and Jaclyn Jennings got to spread out in the fall term, just the two of them — in Lane Community College’s new downtown apartments — in a place built for four.
The project’s roommate matching service put them together but left the remaining two bedrooms in the apartment empty.
Sixty percent of the 75 units in the college’s six-story Titan Court project are vacant. The college is offering a free month’s rent for new arrivals to try and turn the tide.
Local apartment managers say the rental market in Eugene has definitely “softened” especially for student housing. Some are offering move-in concessions to keep their properties filled.
Go to the websites of the Courtside and Skybox apartments near Matthew Knight Arena, for example, and a bright yellow or blue box glides onto the screen, saying “click here to receive 1/2 off your first month’s rent and a waived deposit.”
Amid a high flying multifamily construction boom in Eugene that saw permits for 1,789 new units approved in the past half dozen years, the rental market is cooling.
“There has been quite a bit of student housing built in the university area,” LCC President Mary Spilde said. “You see these small six-, eight-, 12-unit places springing up where there used to be an old house.”
And the numbers don’t include the 90 units in the second phase of Capstone’s 13 & Olive project, the 589-unit Goodpasture Island project and other big student developments in the works for Moon Mountain by Landmark Properties Acquisitions of Athens, Ga., and in downtown Eugene by LG Development Group LLC of Chicago.
While supply is growing, the demand side of the student rental equation isn’t keeping pace. For the first time in years, enrollment at the University of Oregon and Lane Community College has tapered off. UO enrollment was flat this fall, and LCC’s student body was down 8 percent. The UO is forecasting continued flat or declining enrollment through 2021. LCC has strategic plans to “make sure our enrollment is at least stable and isn’t crashing,” Spilde said.
The collision of trends could mean real trouble for Eugene’s rental market, said Bellevue-based developer Martin Seelig, who owns The Collegian on Alder Street.
The problem of a potential oversupply of multifamily housing — including student housing — has been a hot topic among investment analysts and real estate brokers across the country in recent months.
While single-family housing construction virtually dried up during the recession, developers turned their efforts to multifamily projects. They were spurred on by Federal Reserve policies that kept the cost of construction money unnaturally cheap.
A group of student housing developers began specializing in projects built within 1½ miles around flagship universities across the United States, according to industry sources.
“It’s much like how McDonald’s or Wal-Mart decides to set up a store. They just look at it all by numbers and population data and what have you. They look at it from a big picture, 10,000 foot elevation,” said Dolf deVos, commercial broker and property managers with IPMG, Inc., a Eugene-based real estate firm.
When a strategy works for one builder, others aren’t far behind, said Gerard Mildner, an associate professor of real estate finance at Portland State University. “There is a herd mentality in real estate,” he said. “There is a risk they will overbuild. It’s hard to say in fact they have until it happens.”
Multifamily starts jumped 54 percent from 2010 to 2011 — and grew by 36 percent in the first quarter of 2012, according to Harvard’s Joint Center for Housing Studies.
October saw the highest multifamily construction start rate since July 2008, according to the Census Bureau and the U.S. Department of Housing and Urban Development. Starts reached 300,000 nationally, up from 268,000 the previous month.
Developers spend a year or more — and spend hundreds of thousands of dollars — getting conceptual plans, arranging financing, hiring a builder. So, on big projects, it’s hard for developers to put on the brakes.
“Once they get started, they keep going. The momentum carries them through, so that, even if the market changes, they keep going,” Seelig said. “The larger the project the more the lead time, and once things start, it just can’t stop even though it makes no economic sense by the time people start building.”
Lane Community College was fortunate to finance its $20 million project with stimulus-subsidized bonds. The federal government provides 45 percent of the interest payments, and payment on the principle doesn’t begin until December 2016, so managers have some breathing room to get the project leased up.
“We’re going to be fine financially,” Spilde said. “We’re not going to have to use general fund money to bail the project out or anything like that. We’ve been very careful and intentional in how we funded this.”
Some analysts and brokers don’t see a multifamily housing bubble on the horizon. Some of the units on the drawing board for Eugene and elsewhere may never materialize, Seelig said.
“If there’s all these units under construction and two other projects are making announcements, another one comes along and says, ‘What do I want to go into Eugene for? It’s too tough.’ Maybe they’ll get built; maybe they won’t, but that’s the reason for the announcements.”
A generation weighted down with student loans won’t be buying houses any time soon, analysts and brokers say, young people who’ve waited out the recession at their parents’ house will rent before they buy. Others, after watching the foreclosure debacle will be gun-shy about signing a mortgage. All will be renters for the foreseeable future.
“You own a building and a guy builds 200 units next door to you, you might have some issues with vacancy for a while,” said Greg Frick, broker with HFO Investment Real Estate in Portland. “There’s no doubt about it. But over a long term horizon, are you outpacing where the market’s going? That’s the question.”
Already, landlords are adjusting to a new market reality.
“A year ago, if we were having this conversation, things were tight, rents — from the landlord’s perspective — were moving in the right direction. They were going up,” deVos said.
Today, “we have a number of vacancies as we speak, which we typically would not this time of the year. We are having to start offering concessions.
“Frankly, we’ve been slow in some cases to offer concessions. It’s the problem of first persuading ourselves that it’s necessary and then persuading our clients that its necessary,” the property manager said.
At The Collegian, a venerable dorm-like property a few blocks southwest of the university, occupancy is lagging for the first time in at least four years. Out of 44 rooms, 10 remain empty, operations manager Jeff Sather said.
“You can definitely tell there’s a pretty big downturn in the market overall. I’m kind of waiting for the bubble to burst,” he said.
Drive to full
Student housing owners aren’t taking any chances with occupancy. Alabama-based Capstone, which is building 230 units in downtown Eugene targeted to students, has been handing out swag — T-shirts, tote bags, sunglasses, $50 gift certificates — to UO students since early October to market apartments that haven’t yet been built.
The builder got the permit to pour the foundation last week. Move-in is set for fall 2013.
Capstone hired about a half dozen marketing students from the Lundquist College of Business to do promotions, which have included a contest that gave $500 to the student group that generated the most “likes” and “shares” on Facebook and a tailgate party at a football game.
“Marketing is our No. 1 thing — marketing and customer service,” said Jackie Minite, Capstone leasing start-up specialist. “We’ll be fully leased when it’s time to move in.”
In late November, Lane Community College hired a new management firm — switching from Blanton Turner of Seattle to Campus Advantage of Austin — and has plans to crank up its marketing efforts this week, Spilde said.
Then Capstone and LCC will go head to head. The Capstone project is more luxurious, with granite counters, faux leather sectionals and private bathrooms, plus a pool, steam room and tanning. “We’re definitely a different product,” Minite said. “They’re more dormy.”
At LCC’s Titan Court, students get all their utilities paid, including cable and wi-fi, for the price of just rent on rooms in some Capstone apartments.
“One check covers everything,” Titan Court leasing agent Katie Ewoniuk said.
A room in a four-bedroom unit at Titan Court would be $620 a month, inclusive; the same at Capstone’s 13th & Olive would be $639, and the electric is paid separately.
In addition, students who want a furnished bedroom at 13th & Olive would pay an additional $25 per month.
Spilde, meanwhile, said that Capstone’s marketing expenditure also will help fill Titan Court because “they’re going to be marketing downtown as a good option for students to consider,” she said.
“We’re very competitive. Over time, we’ll show we’re a preferred place to live. We’re hoping to be at 85 or 90 percent (occupancy) in the coming year.”
So, Caroline Strek and Jaclyn Jennings will have to make room for two new roommates in their Titan Court apartment. Strek said it would probably be OK, as long as managers match them as well as they did the two of them.
“We’ll probably adjust just fine,” Strek said.