Rooms to rent
Developers will add an estimated 600 apartment units in Des Moines' central business district over the next two years
Friday, May 18, 2012 7:00 AM
Mike Nelson can find intrigue in a doorknob, inspiration in the alignment of windows.
BY THE NUMBERS: Des Moines’ central business district apartments
The estimated number of apartment units planned for the area
The average rental rate for a one-bedroom apartment in the area. Three-bedroom apartments are going for $1,217, making the rental rate averages the highest in Greater Des Moines.
The vacancy rate for downtown apartments. That’s the lowest rate in the Des Moines area, which has an average vacancy rate of 5.3 percent.
Sources: January’s CBRE Hubbell Commercial apartment survey, city of Des Moines, Iowa Finance Authority and project developers.
And market conditions tell him that he can find plenty of renters who share his appreciation of those architectural details, found in the Fleming Building at 604 Walnut St.
Nelson and business partner BJ Baker are set to renovate the 103-year-old office building into 86 market-rate apartments, with space to spare for street-level retail.
They are among a handful of developers and investors who are developing apartment buildings, old and new, that will add an estimated 617 units downtown over the next two years, many of them providing upscale digs with rents that will be among the most expensive in Greater Des Moines.
Hubbell Realty Co. is set to begin a renovation next month of the Rocket Transfer building, 702 Elm St., a project that will represent its first foray into the market-rate rental market downtown. (One other completed Hubbell project is a mix of market-rate and income-restricted units.)
The hard numbers show that downtown is the place to be for developers, and developers are looking at lifestyle changes that suggest that more people age 20 to 40 want to be downtown in the urban core of practically any U.S. city.
Rents in the central business district, the area bounded by Interstate 235 and the Raccoon River on the north and south and extending east from Martin Luther King Jr. Parkway to the state Capitol, are higher than any other area in Greater Des Moines, according to the CBRE Hubbell Commercial apartment survey that was released in January.
The area also has the lowest vacancy rate in the metro area at 2.1 percent, compared with an average of 5.3 percent for Greater Des Moines, according to the CBRE Hubbell Commercial report.
Nelson pointed out that his AP Transfer Lofts, one of several buildings that his firm, Nelson Construction Services Co., has converted from warehouse or office use to apartments, is full and has a waiting list, as does his e300 building in the East Village.
Renters hoping to get into Hubbell’s Riverpoint Lofts, located next door to the Rocket Transfer building, were out of luck if they waited more than a few weeks to secure one of its 91 apartment units after it opened earlier this year.
All of that is good news for developers who managed to stay busy during the recession by rehabbing old buildings or building new structures, such as e300, downtown, but the rental scene also fits the long-term vision for the area that is held by city planners.
City planners would like to see the downtown population grow by another 2,000 residents to 10,000, at least.
“We’ve projected that we’d like to see 10,000 residents downtown, and we wouldn’t stop there,” said Des Moines Community Development Director Phil Delafield.
It is interesting to note that prior to 2008, the CBRE Hubbell Commercial apartment survey did not include the central business district, yet as of March 2009, records compiled by the Downtown Community Alliance showed that nearly 1,600 rental units had been developed in the area.
Hubbell’s research suggests the apartment market will continue to grow for another three to five years, said Steve Niebuhr, a senior vice president who oversees construction projects.
Like Nelson, Niebuhr is as captivated by the old as he is by the new.
In addition to the Rocket Transfer building, built by company patriarch Frederick Hubbell in 1900, Niebuhr said his company is slowly working out the financing for West End Lofts, another market-rate apartment conversion that could launch later this year in what is known as the Mitchell Transmission building at 1440 Locust St.
The company also is considering a residential and commercial project called Cityville on Ninth St. that Niebuhr said could trigger development in the Gray’s Landing area south of West Martin Luther King Jr. Parkway. Preliminary plans call for 288 market-rate apartments.
“This is an opportunity for the city and everyone to get a start on that development,” Niebuhr said. “Our intent would be to do something in late 2012 or 2013. We’ve done a market study and it supports the project.”
That kind of thinking leads Glenn Lyons, president and CEO of the Downtown Community Alliance, to say he doesn’t see “any end in sight” to the construction of downtown apartments.
“There are lots of people trying to put projects together, kicking the tires,” he said.
Lyons noted that the use of tax credits for the construction of income-restricted units helped sustain developers and contractors through the recession. Financing for projects such as the Fleming Building and Rocket Transfer building is supported in part by the use of historic tax credits that do not carry income restrictions for renters.
High rents and low vacancies also make the current projects more appealing to lenders.
Nelson recently closed on $17 million in loans from three lenders – Bankers Trust Co., Great Western Bank and Central State Bank. “You’ll see Dumpsters outside the Fleming Building next week,” he said May 10, the day the financing closed.
It is worth noting that Nelson’s use of historic tax credits also led him to another development partner, Missouri-based Foutch Bros. LLC. He teamed up with the company to buy the Des Moines Building from the city of Des Moines for $150,000.
The $22 million renovation of that historic building into 145 market-rate apartments has been recommended by the city for a $3 million development grant. The Nelson-Foutch project was recommended over other projects because it could be ready for construction in the least amount of time, Delafield said.
Nelson said renovation of the Des Moines Building most likely will start in 2013.
Meanwhile, Foutch Bros. also bought the Equitable Building downtown and expects to begin work later this year or early next year on a conversion of that office building to a mix of 120 apartments plus retail space that could open in 2014.
What has developers excited is a shift in attitudes, especially among people age 40 and younger, that prizes the mobility offered by renting over home ownership, Niebuhr said.
“Renting was at one time viewed as a failure to qualify for home ownership, but that stigma is gone,” he said. “People can rent a lifestyle.”
Nelson is keeping track on the same trends.
He notes that the rural flight to cities will result in 75 percent of the world population living in urban areas by 2050. And that flight is among an age group that values style and thoughtful design.
Nelson believes his renters are as fascinated by the detail of a cast-iron doorknob sporting the initials “FB” as he is. The doorknob is found at the Fleming Building, which also features the pattern of three windows that allows views of downtown for every upper floor unit in the 11-story building.
“You’re seeing young people value design. Design is becoming a language in and of itself,” Nelson said.
In addition, there is a practical appeal to converting old buildings to new uses.
“The cost of doing things the old way would be prohibitive,” Nelson said.
Preserving buildings is better than razing them and hauling the debris to a landfill. Nelson said demolishing the Des Moines Building would generate waste that would equal that generated by one family for 2,000 years.
“We would argue that preserving a building is the most sustainable thing you could ever do. Don’t put them in the ground,” he said.
Apartments in the works: planned, under construction or Recently OpenEd
1 Portwell-Wellsport Apartment
641 19th St.
2 High Street Brickstones
1710 High St.
3 West End Lofts
1440 Locust St.
4 Crane Artist Lofts
1440 Walnut St.
5 Equitable Building
604 Locust St.
6 Fleming Building
604 Walnut St.
7 Rocket Transfer 702 Elm St.
8 Riverpoint Lofts
340 SW Seventh St.
91 units - OPEN
9 Des Moines building
405 Sixth St.
Developers have opened, planned or started construction on nine projects to open up former warehouses, manufacturing facilities and office buildings for apartments and, in some cases, retail spaces that proponents say will transition downtown to a 24-hour city.