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Insurers are starting to be wary of insuring certain types of apartments in the Twin Cities metro, according to a new report from Michel Commercial Real Estate, which could open up potential for multifamily investors looking to acquire older products. presents a problem.
The report, a third-quarter review of the multifamily market, says insurers’ caution has increased focus on newer “high-quality, low-risk assets” in metros.
Michelle Vice President Heidi Addo said insurers cited the hailstorm that hit Minnesota as a reason for skepticism, but Addo said companies are asking investors to pay more premiums because He said there was a high possibility of a natural disaster.
As a result, more insurance companies are becoming wary of property fires, and more owners and managers are having to replace fuses with circuit breakers and consider how to install sprinkler systems.
“Replacing fuses and breakers can quickly cost $1,200 to $1,500 per unit because of the fire hazard,” Addo said. “The old ones…probably weren’t sprinkled. So, are you going to retrofit a 300-unit 1970s building with sprinklers? That’s cost-prohibitive.”
But Addo said buyers aren’t shocked by the trend toward higher premiums, they just need to take it into consideration when underwriting a property.
The report also notes that while the average vacancy rate for multifamily housing is 7.3%, down from the same period last year, the number of units under construction remains at 8,671.
Woodbury continues to attract investor attention, with City Center’s Woodbury Park posting the quarter’s highest unit sales of $242,358. Addo said Woodbury has seen an influx of young, high-income professional families, resulting in increased investor confidence.
Widener Apartment Homes also continued its expansion during the quarter, acquiring two adjacent properties, Blue Apartments and Lime Apartments, for a total of $80.5 million.
Senior housing of various types has proven to be a popular product in the Twin Cities metropolitan area, with four properties across the region hitting record highs in the third quarter.
The two properties brought in by Mr. Egan and Mr. Ramsey accounted for about $72.6 million worth of sales last quarter, according to a previous report in Finance & Commerce. Two active adult properties, Affinity at Eagan and Affinity at Ramsey, rent to residents age 55 and older without providing services. Addo said real estate for active adults is seeing increased interest from investors.
“Some of these high-end properties can be slow to lease up. They intentionally limit the renters who can live there to people over 55, just because it’s a niche market. There are,” Addo said. “But once you lease a premium property, you lease it for a long time. …People want to stay there for a long time.”
Related:
Egan’s Affinity to be sold for $40 million
Lime Apartments is priced at $34.5 million.
Woodbury apartment complex sold for $55.5 million
