With $1B in projects, building is booming in Minneapolis

[MNMike]

I think this is once again becoming the case in many US cities? Things are pretty good in Minneapolis right now! This is somewhat related to the other thread about housing starts in US markets...but it is a more broad sweep(not only residential) and speaks of only development within the Minneapolis city limits, so I wasn't sure it fit there. Also, there is a nice shot of construction downtown on the cover of the article

One of the main highlights...Minneapolis has issued more housing permits this year that at any time during the big condo boom around 2005!

To date, over 12,000 total (all kinds) building permits have been issued in 2012 within the city limits.

The top 5 current projects:

TOP FIVE PROJECTS IN MINNEAPOLIS
Measured by building permit valuation

1. Magellan Development's 36 story Loring Park apartment tower, 1369 Spruce Place, $73.1 million.

2. Whole Foods and 222 Hennepin apartments, developed by Ryan Cos. U.S. Inc., $45.2 million.

3. Orchestra Hall addition, 1100 Marquette Ave., $39.5 million.

4. Soo Line Building City Apartments, Michigan-based Village Green, 101 5th St. S., $30.1 million.

5. Children's Hospital/Abbott Northwestern Hospital, 902 E. 26th St., Mother-Baby Center, $29.1 million


http://www.startribune.com/local/min...1.html?refer=y


With $1B in projects, building is booming in Minneapolis

Article by: JANET MOORE , Star Tribune Updated: December 4, 2012 - 9:57 AM
Fueled by urban-loving millennials and baby boomers downsizing their households, more than $1 billion of construction projects have been approved in Minneapolis.


The city of Minneapolis confirmed what many commercial real estate developers already know: The City of Lakes is in the midst of a building boom and much of that activity is downtown.

Fueled by urban-loving millennials and baby boomers downsizing their households, more than $1 billion of construction projects have been approved in Minneapolis, according to permit numbers released Monday. This year, Minneapolis has issued building permits for more housing units than at any time since the condo boom in the early 2000s.

"We definitely are pulling out of the recession faster than most," said Jeremy Hanson Willis, director of the city's Community Planning and Economic Development department.

To date, 12,161 building permits have been issued in Minneapolis, many of them downtown. While the numbers document all kinds of building projects, housing and, especially apartment construction, are fueling the boom,

"Apartments are an interesting phenomenon," said Mark Stenglein, CEO of the Downtown Council, a group of Minneapolis businesses. "There's a reason why there's such interest in rentals -- nobody ever thought they'd ever lose money on their house, but we've seen that's not always true."

...continued in link

[urbanpln]

Glad to see Minneapolis thriving.

[MNMike]

http://www.startribune.com/business/181939081.html

Total valuation of building permits in Minneapolis since 2000

2000 $1.14 billion

2001 $975.8 million

2002 $889.2 million

2003 $852.2 million

2004 $944.7 million

2005 $855.2 million

2006 $839.6 million

2007 $761.3 million

2008 $772.5 million

2009 $778 million

2010 $547.6 million

2011 $752.8 million

2012 $1 billion (through November)

Source: City of Minneapolis/Star Tribune research

[mhays]

Seattle too. This is one reason our budget is doing much better than most in the suburbs.

We have something like 8,500 apartments/condos under construction (of which 300 is condos and 6,000 are in greater Downtown), a handful of office buildings under construction (all Downtown fringes), a light rail tunnel half-done, a northward rail expansion that just started, a $2b Downtown freeway bypass tunnel digging the pit for the boring machine, a mostly-new UW football stadium opening this summer, the typical long list of UW projects underway, and so on. That's after opening a couple thousand units of housing in the past year, mostly around Downtown, as well as more office buildings.

I have no idea how many more housing units are in the entitlement stages, but it's certainly in the five figures, maybe 10,000 to 15,000. On the office front, Amazon plans to add another 3.3 msf in three towers, the first starting this spring or summer. A new office building for Brooks Sports is supposed to start this month. Other office developers are lining up, as are hotel developers.

Annual permit volume (http://www.seattle.gov/dpd/Research/...ts/default.asp)
2012 YTD: $2.2b
2011: $2.1b
2010: $1.6b
2009: (not avail?)
2008: $2.6b
2007: $2.9b
2006: (not avail?)
2005: $1.7b
2004: $1.7b
2003: $1.2b

[Austinlee]

Is the building roughly the same as demand? That's the real question. A high vacancy rate doesn't help anyone including the builders. You need to see a high absorption rate.

[mhays]

Originally Posted by Austinlee

Is the building roughly the same as demand? That's the real question. A high vacancy rate doesn't help anyone including the builders. You need to see a high absorption rate.

You need a generally healthy market, and the prospect for continued health.

In Seattle's case, the apartment vacancy rate is below equilibrium and rents are rising. The hotel occupancy rate is higher than before the bust, though room rates have only recovered partially. Lab space is fairly tight. The wave of empty condos is mostly gone. Offices are still above equilibrium but the metro has absorbed 2.3 msf in the past year, with 1.4msf downtown. Combine all that with low construction prices and very low interest rates (for ironclad developers, not others) and things look good.

[MNMike]

Originally Posted by Austinlee

Is the building roughly the same as demand? That's the real question. A high vacancy rate doesn't help anyone including the builders. You need to see a high absorption rate.

No the building isn't the same as the demand...actually it hasn't been able to catch up with the demand yet...but I don't think that is what you meant

Why so negative? Yes, the situation is much the same in Minneapolis as the Seattle forumer described. Very good absorbtion, and the apartment vacancy rate remains at record lows...below 2%. A lot of pent up demand. The building hasn't been able to keep up with the demand so far...still waiting for that to equal out before we come close to having to worry if too much is being built. People are putting deposits on apartments that have just started construction the way things are right now in Minneapolis

The housing market is coming back too...the first condo building since the market crashed has just broken ground downtown Minneapolis...170 units in 12 floors.

I really think we have turned a corner in Minneapolis the past few years, and we have seen a huge shift to more urban living.. I wasn't sure it would ever happen, so it has been kind of amazing to watch the momentum build.

[min-chi-cbus]

There are a couple of other factors besides the (ridiculously) low vacancy rate in the city and especially sub-areas within the city: <2% city-wide and some sub-areas are under 1%!

1. The homeownership ratio is at/above 85% in the region, which is quite a bit higher than the national average (I believe that is closer to 80%).
2. There are a VERY large number of low-income and middle-income families moving into the area through immigration and migration from other Midwest cities that is placing a lot of demand on more affordable, market-rate housing options. There has almost ALWAYS been an incredible shortage of affordable housing in the area.
3. The region's investment in mass transit in the form of light rail and bus rapid transit has focused investment primarily in the core areas, which has made land along those routes more desirable than in previous years/decades.
4. Prices of homes in far-flung suburbs are still falling and both vacancy rates and foreclosure rates are the highest in those areas, limiting demand for growth in those areas and instead pushing it more towards the core (there is no "recession" for greedy investors!).


But, as the eternal pessimist that I can be, I too am sort of waiting for the bottom to fall out at some point with all of this new activity. Minneapolis has pretty much never been a place with rapid boom/bust cycles like you'll find in more speculative markets like Seattle or other cities along the coast. Housing prices are still fairly modest here and that's always going to make home ownership an attractive option among those who can afford it and are willing to accept its risks. It sure doesn't help that banks aren't lending to anybody but the King and Queen of England right now either.

[mhays]

Minneapolis' apartment vacancy rate is way lower than Seattle's. While your construction volume is substantial, it's probably held back by the moderate pricing you speak of.

Seattle is bouncing along in the 4.5-5% vacancy range, with some core neighborhoods being lower. Some analysts and developers think we're overbuilding, pointing to our largest ever rental development spike, which I counter by noting that condos and houses are seeing very little construction, so the overall boom is pretty modest by regional unit count. Rental prices are over $3/sf for highrises on the Downtown fringes and heading higher, which combined with local construction costs and the great lending rates some developers can get translates to a ton of construction. Other developers continue to be optimistic, and keep breaking ground on projects seemingly every week.

[youngregina]

This is interesting as Saskatoon, Saskatchewan has over 1B in construction up to the end of November this year. And Regina has 750M up to November this year too. These are only cities of 250,000 and 210,000 respectively.

[mrnyc]

msp and sea are definately unusually healthy cases, but relatively speaking isn't vacancy rate down and demand for apts up in all major city downtowns? the downtown living boom thing is still going strong isn't it?

[niwell]

Originally Posted by youngregina

This is interesting as Saskatoon, Saskatchewan has over 1B in construction up to the end of November this year. And Regina has 750M up to November this year too. These are only cities of 250,000 and 210,000 respectively.

The original post stated that this refers to Minneapolis city limits only, so we are talking about a population of ~400,000 in an essentially built-out area. All of these proposals would likely be infill projects whereas Regina and Saskatoon have tons of greenfield development going on. I'd imagine that the Minn stats would be much higher if suburban development was included.

[Evergrey]

whoa... those Regina/Saskatoon numbers blow away MSP... very impressive!

[min-chi-cbus]

Originally Posted by mrnyc

msp and sea are definately unusually healthy cases, but relatively speaking isn't vacancy rate down and demand for apts up in all major city downtowns? the downtown living boom thing is still going strong isn't it?

Definitely....this is just one example!

[min-chi-cbus]

Originally Posted by niwell

The original post stated that this refers to Minneapolis city limits only, so we are talking about a population of ~400,000 in an essentially built-out area. All of these proposals would likely be infill projects whereas Regina and Saskatoon have tons of greenfield development going on. I'd imagine that the Minn stats would be much higher if suburban development was included.

They're higher but not "much" higher. Somewhere between 12K and 15K units metro-wide, with 75%-80% of that going into the core cities of Minneapolis and St. Paul (10K-12K units). It's not a paradigm by any means (not the norm, or mold). But like you noted almost 100% of the units proposed or U/C are infill in established areas (even the suburban projects are in inner-ring suburbs like St. Louis Park, Edina or Richfield).

Besides, we're not competing with Canada (which I personally worry IS overbuilding). It's just a story about local success.

[min-chi-cbus]

Originally Posted by Evergrey

whoa... those Regina/Saskatoon numbers blow away MSP... very impressive!

Canada's economy is growing much faster than America's right now, and has been for some time.

[MNMike]

Originally Posted by min-chi-cbus

They're higher but not "much" higher. Somewhere between 12K and 15K units metro-wide, with 75%-80% of that going into the core cities of Minneapolis and St. Paul (10K-12K units). It's not a paradigm by any means (not the norm, or mold). But like you noted almost 100% of the units proposed or U/C are infill in established areas (even the suburban projects are in inner-ring suburbs like St. Louis Park, Edina or Richfield).

Besides, we're not competing with Canada (which I personally worry IS overbuilding). It's just a story about local success.

Remember, we aren't just talking about residential units, this is all construction.

[dc_denizen]

In terms of total permitted residential units, Canada is building at about >2x the US per capita number. (US 550,000 units residential permitted in 2012, Canada ~167k). In the boom the US built around 1000k-1500k/ year.

Through October Regina had $500 MM worth of residential permits issued in 2012 according to Cansim, for 1,300 multifamily and 1300 single family housing units (2800 total). Saskatoon had $750 MM, 1800 single family permits and 1100 multifamily permits (3500 total). These are pretty impressive numbers for small cities (250k)

In terms of units permitted, Minneapolis had far more for its entire MSA (not surprisingly): 9,000 permitted units in 2012 according to the census. Of this, 4,100 was multifamily (>5 units). Per capita, the number is much less.

We are probably seeing growth in the prairie provinces on the back of people moving in from other parts of Canada. Regions like North Dakota (fargo: 1600 units permitted in 2012, bismarck 1000 units) in the US that are focused on resource extraction are also growing in similar fashion.

[MNMike]

That would be North Dakota, not South.

[Unity77]

Originally Posted by Evergrey

whoa... those Regina/Saskatoon numbers blow away MSP... very impressive!

No they don't. This thread is regarding projects in the city of Minneapolis only. It does not take into account all the building activity in St. Paul and MSP suburbs.

As far as Saskatoon's development is concerned:
Most of the construction was in the new suburbs of Evergreen, Rosewood, Hampton Village and Stonebridge... Although the city has had its fair share of large projects — the $74.7 million police station being the most expensive example — Baron says it’s development in the suburbs and infill on family homes that account for the most growth."
Source: http://prosperitysaskatchewan.wordpr...ach-1-billion/