All Indicators Pointing to New Apartment Construction

Recent movement in the market-rate apartment industry in Rogers and Bentonville is expected to signal the beginning of a trend in Northwest Arkansas — renewed construction of non-student multifamily housing.

For the past few years, nearly all the action in apartment construction has been in Fayetteville, where builders are churning out, and will continue to churn out, rent-by-the-bedroom complexes nucleated around the University of Arkansas and its soaring student population.

But in Springdale and Rogers, large-scale apartment complexes have not been built since 2007, and outside of the 96-unit Copperstone Phase II last year, not in Bentonville since 2010.

But all that’s about to change, said Brian Donahue, a senior associate with the Northwest Arkansas branch of global real estate brokerage firm CBRE. Pointing to the key ingredients for an apartment boom — rising rental rates and occupancy of about 95 percent — he says the region is ripe for a new round of construction.

“I think in the next two to three years you’ll see a steady increase in market-rate complexes,” he said. “It’s only a matter of time.”

That “next two to three years” has already begun.

In January the city of Rogers approved a plan for the upscale, 200-unit Promenade Point Apartment complex at 4101 W. Huntington Place, a joint project by Hunt Ventures LLC, former Tyson Foods Inc. general counsel Les Baledge of Fayetteville and the Sterling Group of South Bend, Ind.

In August, Bentonville planners approved a 487-unit complex called The Trails at Rainbow Curve that, when completed, will be one of Lindsey Management’s largest complexes in the region. Sprawled over a 42-acre site, The Trails, estimated to be worth around $43 million, will feature 27 three-story apartment buildings and a clubhouse.

As interest in apartment construction unfolds, Rogers and Bentonville are expected to receive sustained interest from investors. And the reason is obvious — Rogers, at $630, and Bentonville, at $619, have the first- and second-highest overall rental rates in Northwest Arkansas.

“Due to that, it’s more attractive to build there,” Donahue said.

While Springdale suffers from the lowest overall rental rate, $488, it has at least one important thing going for it — customer service.

“Springdale has a reputation of being business friendly,” Donahue said, meaning an investor might take a chance on building a complex there even if higher returns are to be found to the north.

Donahue recently issued his 2013 Northwest Arkansas Apartment Market Overview and 2014 Forecast. Donahue’s report is based on 22,000 of the estimated 28,500 apartment units in the region, with information only collected from complexes with 50 units or more. The results of the annual survey have led Donahue to be bullish on the entire region.

“As market fundamentals continue to hold strong we expect all classes of multifamily product to trade at a premium in 2014 as apartments continue to remain the prized asset class for commercial real estate investors,” he concludes in his report.

But even with that optimism, he said that he, and more importantly, the builders, are waiting to see just how the student-housing boom develops in Fayetteville before building market-rate units more suited to families and young professionals.

According to Donahue’s report, at $935, Fayetteville’s rental rate for three bed/two bath apartments is the second highest in the region. Donahue’s report also shows that 823 student units have come online in Fayetteville since fall 2012 and another 750 are due to come online by 2015. Also in the equation is the ongoing effort to house students in university-built dorms.

The biggest question centers on absorption and how student housing will affect the overall landscape of multifamily living in Fayetteville.

“We don’t know yet,” Donahue said.