Wil Brasington frequently asked voters what they were concerned about as he campaigned successfully this spring and summer to be the Republican nominee for the District 4 seat on Greenville City Council.
Brasington said he was surprised by how many times voters responded to his question by bringing up the number of apartments under construction downtown.
Sensing apartment overbuilding to be a question on voters’ minds, Brasington made sure to put photos of downtown apartment construction on a mailing he sent out to emphasize his commitment to growth management.
“As a candidate, I can say definitely that many folks feel we’re getting too many apartments too quickly and perhaps more than we need,” Brasington said.
A survey taken in May by Real Data, a Charlotte, N.C.-based firm that tracks Southeastern apartment markets, found developers were building, or had proposed to build, another 1,373 apartments downtown, an increase of nearly 80 percent in the existing supply of 1,746.
Real Data also found that an additional 168 downtown apartments were rented out between November of last year and May. At that rate, it would take four years for the downtown market to absorb all of the apartments under construction or planned.
A list of downtown apartment developments maintained at City Hall and current through June 8 shows 1,427 units under construction or planned, a near doubling of the 1,455 units completed since 2010.
Russ Davis, a Greenville apartment developer, said it’s not yet clear whether developers are building too many apartments downtown.
But if they are, it wouldn’t be the first time developers had overbuilt an apartment market, he said.
“As an industry, we don’t have the greatest discipline,” said Davis, who developed two apartment complexes downtown — McBee Station and 100 East — and was a top executive for Trammell Crow Residential Services when it was the nation’s largest apartment developer. “We tend to build until the music stops and one or more people can’t find a chair.”
Davis said he’s not expecting banks to foreclose on any downtown apartment complexes, and he remains bullish on the downtown market over the long term.
“But we may have a short-term imbalance,” he said.
Who gets hurt?
Apartment investors might not get the returns they expected if too many units are built. If things get bad enough, they may cease doing business in Greenville.
“I don’t think it has to be a total wipeout for those guys to say, ‘I don’t want to do any more business in Greenville,’” Davis said.
On the other hand, renters could benefit from an oversupply of downtown apartments as competition between complexes drives down prices.
Andrea Pevey, a research analyst at Real Data, said three out of 10 downtown apartment communities had already begun offering “concessions,” such as one month of free rent on a year’s lease, when her firm surveyed the market in May.
Just satisfying pent-up demand?
Greenville Mayor Knox White and Greenville real estate executive Brad Halter said they believe apartment developers are responding to strong demand from consumers who want to live downtown but can’t afford, or don’t want, a luxury condo.
When downtown first started to become an attractive place to live — the result of years of revitalization efforts by the city working with local developers — there were very few downtown apartments, White and Halter both noted.
The strength of the demand for downtown apartments became evident a decade ago when Davis opened McBee Station between McBee Avenue and Broad Street.
For a while, the 197-unit complex had the submarket virtually to itself and was able to command a rent of $2.10 per square foot, as high as in the tony Buckhead section of Atlanta, Halter said.
Other developers had to wait for the Great Recession to pass before they could jump into the market with hopes of duplicating the success of McBee Station.
Halter said he expects all of the complexes under construction or planned downtown to fill up eventually.
He’s an owner of the residential and commercial real estate brokerages that do business under the Coldwell Banker Caine name, and his family is part of a partnership that has a small stake in Ellison on Broad, a new 201-unit apartment complex on Broad Street downtown.
“It’s a classic real estate cycle,” Halter said. “There’s not enough, and then there’s too much, and then there’s not enough.
“I don’t think any of these projects are going to go under,” he added. “I don’t think that’s where we are. I think everybody needs to have patience to let the market settle out and let demand and supply find equilibrium.”
The mayor said the number of new downtown apartments in the development “pipeline” is much smaller than it used to be.
“I would be concerned if it was continuing at the pace we saw two and three years ago, but it’s not,” White said.
“We were playing catchup, and I think we’re about caught up,” he said, adding that the city needs to “step up its game” when it comes to design requirements for apartments and stay diligent on such issues as parking and traffic congestion.
Constraints on future development
Charleston developer Dan Doyle said higher construction costs and newfound skepticism on the part of bankers will likely constrain apartment development going forward — not just in Greenville but around the country.
Doyle expects the downtown Greenville units currently under construction, as well as those that are planned, to be absorbed, but he’s not expecting much more beyond that for the time being — at least not on the high end.
“I think what we see is probably what we’ll get,” said Doyle, a senior vice president with The Beach Co., the developer of the 350-unit South Ridge complex at the corner of Church Street and University Ridge and the 293-unit Stone + Main complex at the corner of North Main Street and Stone Avenue.
Bank lending for new apartments has been liberal since the Great Recession, but Greenville banker Sam Erwin said developers are likely to face less favorable loan terms going forward out of a nationwide concern that there’s not much room in the market for more apartments, if any.
“There’s no question that banks are being more selective and a little more careful than they have been,” said Erwin, regional president of Iberiabank, which financed Trailside, a 215-unit apartment complex under construction at the corner of Academy and Westfield streets near the Kroc Center.
One group that apparently isn’t worried about a market collapse are the four out-of-state companies that together paid more than $155 million for four downtown Greenville apartment complexes over the past two years.
The investors from Atlanta, Philadelphia, and Southern California acquired 752 units at McBee Station, 400 Rhett, 98 East McBee, and South Ridge in separate deals between summer 2015 and fall 2016, according to transaction data from NAI Earle Furman, the commercial real estate brokerage.
Tony Bonitati, a broker in NAI Earle Furman’s multifamily division, said his firm expects more trading in apartment complexes at even higher per-unit prices, though it also anticipates a softening in rent growth as more apartments come on the market.