In the years since the real estate bubble collapsed, developers have looked long and hard at what projects they have in the pipeline in an attempt to bring online those products for which there is a current market demand.
One segment of the real estate market that is starting to show signs of revitalization are high-end rental apartment buildings in urban downtown areas, particularly those near public transportation, with extensive amenities. New projects or permit applications are beginning to crop up in popular towns throughout the state.
To a degree, developing real estate in Massachusetts has changed. Some projects that were originally slated to be condos have been converted to rentals because of these shifting market dynamics. Developers point to the "renters by choice" theory, that is those people who can afford to buy, yet are instead opting to rent because of the flexibility and ease of being a renter.
Moreover, as there has been very little new real estate development in recent years, there is pent-up demand for rental. Furthermore, banks are far more comfortable financing the development of rental properties than “for sale” properties because the rental market isn’t as volatile as condos.
What we are seeing is the perfect storm of demand, opportunity and capital. There is the demand for the populace to relocate to downtown areas; the opportunity (because) the local government/municipalities are really encouraging growth of rental properties; and there is debt (bank) financing and equity waiting to be deployed into such developments.
The average rental rate has rebounded upward by 3.1% since its trough in early 2010, and Massachusetts landlords are receiving very high average rents. Consequently, vacancy rates have been falling since the first quarter of 2010.
There is significantly more demand for rentals than there are for the “for-sale [properties]", said Carl Goldberg, managing partner of Roseland Property Company, one of the state’s leading high-end residential developers. "Today’s market is skeptical about the wisdom of purchasing a home for a variety of reasons, including the availability of mortgages, the perception that for-sale housing is not going to enjoy the appreciation potential it did in generations past, and rental communities provide more flexibility and more liquidity and more mobility."
There are also development incentives that are available, despite the improved market conditions, and developers are still applying for financial incentives to help offset construction costs. Economic Redevelopment and Growth Grants, as well as tax credits for pending projects are just some of the incentives developers can go after.
While there is still the possibility the market could shift back toward condos, developers are betting residents will want to rent as long as it is difficult to obtain a mortgage and job security stays rocky.
Original article – NJ.com