Multifamily Market

MULTIFAMILY MARKET

MINNEAPOLIS-ST. PAUL 2019 YEAR IN REVIEW & 2020 OUTLOOK Concerns about vacancy, concessions and oversupply are valid, but it is worth noting that the vacancy rate across RECENT all classes—A, B and C—remains at or below the market TRANSACTIONS equilibrium. Softness in specific submarkets is more common as supply waves create a large number of units in lease-up at the same time. But as a whole, all of these submarkets have moderated over time.

A situation worth watching in 2020 concerns an increasingly aggressive regulatory environment, particularly affordable housing requirements. Combined with the gradual increase Overview in construction costs, investment yields on new construction Mezzo, Minneapolis | Built 2018 | 110 Units | $24.55M continues to compress. As returns fall into the 5.5 to 6.0 Looking back at the current cycle, it appears that the Twin Some of this is driven by price appreciation and heavy buyer percent range, minor changes in other levers like interest Cities multifamily market has reached a new norm on both demand, and some of it by the very nature of private equity rates and operating expenses (particularly real estate taxes) the transactional and development fronts. Historically driven and institutional ownership, which typically favors a three could have a sudden impact on the new construction pipeline by private capital buyers with long ownership periods, trade to 10 year hold period rather than legacy ownership. The going forward. frequency has greatly increased for existing properties and pattern of greater sales velocity appears to be the baseline new development. for our market going forward. Vacancy & Rental Rates Lauren Uptown Portfolio, Minneapolis | Built 1922-1968 | 115 Units | $17.4M TRANSACTION ACTIVITY $1,350 4.0% Early in the cycle, transaction volume quickly grew from $250 $1,300 3.5% 3.0% OUR MULTIFAMILY EXPERTS million to $500 million to $1.0 billion and finally reached a $1,250 2.5% high point of $2.0 billion in 2017. Over the past two years, $1,200 volume has moderated between $1.5 billion and $2 billion. 2.0% TED BICKEL, J.D. $1,150 Based on our initial readings this year, we see volume staying 1.5% Senior Vice President $1,100 1.0% 952 837 3097 within that range in 2020. $1,050 0.5% ted.bickel@colliers.com Investor sentiment remains very positive both locally and $1,000 0.0% White Bear Apartments, White Bear Lake | Planned | 189 Units | $35.2M (equity) nationally. The Minneapolis-St. Paul market has evolved into 2015 2016 2017 2018 2019 JEFF BUDISH one of the most targeted secondary markets in the United Average Rental Rate Vacancy Rate Senior Vice President States. source: Yardi 952 897 7755 [email protected] During our discussion with clients at the National Multi- Total Sales Volume Housing Conference, it is apparent that buyer appetite greatly outpaces supply. This is especially true for value- $2.00

LAUREN PANZER, CCIM add investments, which is the most sought-after class of $1.75 Senior Real Estate Analyst investment within the multifamily sector. Outsized allocations $1.50 952 837 3018 Granite Manor / Runestone, Alexandria | Built 2013 | 131 Units | $15.5M for this year will continue the prolonged seller’s market. $1.25 [email protected] $1.00 The pool for core/core+ is not as deep but contains a number Billions $0.75 $0.50 LACEY O'CONNOR of strong buyers, some of which are just starting to look at the Minneapolis-St. Paul market. As capitalization rate $0.25 Property Marketing Specialist $0.00 952 374 5812 compression for Class A product is felt particularly on the 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 [email protected] coasts, buyers are seeking additional yield in secondary source: Real Capital Analytics markets with strong economies like the Twin Cities. Total Metro Units Completed Timberland Valley, Shakopee | Built 1999 | 60 Units | $7.94M

NEW CONSTRUCTION 10,000

2019 TEAM Last year, we predicted a slowing of new construction 8,000 $235.1M SALES VOLUME deliveries in future years, which has not come to fruition. For 6,000 2020, more than 10,000 units are scheduled to deliver around 7,672

4,000 12,055* 6,550 the metro area. We frequently discuss supply and absorption 6,281 PAST 36-MONTH trends with clients as they assess where the market is 4,468 $655.8M TEAM SALES VOLUME 2,000 headed and which submarkets can support new construction 2016 2017 2018 2019 2020 Millennium at Edina I, Edina | Planned | 227 Units | $7.5M (land) fundamentals. * Estimation based on units currently under construction. source: Colliers Research

Multifamily Investment Sales Report | 2019 Year In Review & 2020 Outlook | Colliers International | Minneapolis-St. Paul Multifamily Investment Sales Report | 2019 Year In Review & 2020 Outlook | Colliers International | Minneapolis-St. Paul SALE VOLUME & DEVELOPMENT TRENDS INVESTOR PROFILE RENTER DEMOGRAPHICS How do local buyers stack up against national buyers in the Like most current U.S. metros, the largest age group in the » $1.87B traded per year (past three years) state of Minnesota? Minneapolis-St. Paul metro is 25-39 years old. This age group » One-third of transactions over $10M were new developments sold within five years of construction. makes up the majority of renters. The second largest is 45-59 Buyer Makeup in Minneapolis- years old. People in this demographic are increasingly opting Our thoughts... St. Paul (past three years) to rent instead of own. » With an increasing number of institutional and large private non-Minnesota buyers, transaction volume looks to be at a new normal between $1.0-2.0B, still lower than other major metros around the country, but significantly higher than previous TRANSACTION SIZE Minneapolis - St. Paul years in Minnesota. Population by Age » Construction costs are on the rise, and new legislation in Minneapolis-St. Paul will affect new construction. We expect a $21M+ 85+ 66,006 large number of units delivered in the next two to three years, considering the number of projects already underway or 80-84 56,418 approved prior to legislation going into effect. However, we expect very few urban deliveries in four to five years, pending $10-20M 75-79 86,139 some other market factors. <$10M 70-74 133,757 » Transaction volume will trend up alongside new construction deliveries. 65-69 180,976

60-64 225,071

55-59 255,339 RENTERS Multifamily Units Delivered by Submarket DOWNSIZING BUYERS BY LOCATION (%) 50-54 238,256 KEY 45-49 232,427 2016 Delivery 2017 Delivery 2018 Delivery 2019 Delivery 25 / 75 60 / 40 90 / 10 40-44 231,906 MN NON-MN MN NON-MN MN NON-MN BUYERS BUYERS BUYERS BUYERS BUYERS BUYERS 35-39 256,370

30-34 254,253 BUYERS BY EXISTING PRESENCE IN MINNESOTA (%)

25-29 267,307 RENTERS NORTH CENTRAL SUBURBAN PRE-FAMILY NORTHWEST SUBURBAN 587 Units 20-24 235,610 662 Units 658 Units 70 / 30 80 / 20 95 / 5 980 Units 256 Units EXISTING IN NEW TO EXISTING IN NEW TO EXISTING IN NEW TO 1608 Units 259 Units MN MN MN MN MN MN 15-19 230,872 381 Units *"Existing in MN" refers to investors who owned property in Minnesota prior to 2017. 10-14 242,540 source: Real Capital Analytics NORTHEAST UNIVERSITY NORTHEAST SUBURBAN 5-10 235,018 NORTH MINNEAPOLIS 971 Units 157 Units 178 Units 1076 Units 104 Units Our thoughts... 0-4 229,053 54 Units 517 Units 224 Units 393 Units UNIVERSITY EAST ST. PAUL » Minneapolis-St. Paul has a strong private ownership 10K 30K 50K 70K 90K 110K 130K 150K 170K 190K 210K 230K 250K 270K DOWNTOWN MINNEAPOLIS 388 Units source: www.census.gov 941 Units 432 Units base that remains active and competing with money from 1104 Units 108 Units Our thoughts... 495 Units outside of Minnesota, mainly in the $2-20M product. 707 Units » In 10 years, the largest group will likely be 35-49 years » Ownership new to Minneapolis-St. Paul has to set up DOWNTOWN ST. PAUL old, who historically have moved to the suburbs and 191 Units local management. This is more difficult with smaller UPTOWN LAKES MINNEAPOLIS SUMMIT MACGROVELAND 70 Units owned homes. Will this be true in 2030 or be a new rental 279 Units 293 Units 136 Units projects. The most active investors outside of Minnesota 331 Units demographic, due to lack of affordability? 244 Units 202 Units 289 Units SOUTH MINNEAPOLIS 397 Units already entered the market in 2014-2016 and set up local 278 Units 148 Units SOUTHEAST ST. PAUL management and acquisition parameters, mainly in the » 55+ multifamily housing likely has a long runway, should 227 Units 116 Units 367 Units 114 Units $10M+ range. preferences of this age group continue to move toward 182 Units 264 Units renting versus owning. » There is a new generation of local multifamily investors

SOUTHWEST SUBURBAN buying their first or second multifamily property, making » Like in most metro areas, people are having fewer kids, 1448 Units SOUTHEAST SUBURBAN up a large percent of the under $10M transactions. which means they are more likely to rent, occupy smaller 1032 Units 528 Units 1085 Units 189 Units spaces and have more disposable income. SOUTH CENTRAL SUBURBAN 646 Units 963 Units 100 Units » We hear from many new investors trying to get a foothold 510 Units 113 Units in the Minneapolis-St. Paul market that they often have » The majority of movement to Minneapolis-St. Paul comes 505 Units 484 Units trouble competing with local investors that have in-place from surrounding states (ND, SD, WI and IA), as well as management efficiencies and understand micro-market outstate MN. This demographic is much different than fundamentals. However, each year new entrants purchase coastal rental markets, which see new residents from

source: Colliers Research their first project and expand from there. other major metros and abroad.

Multifamily Investment Sales Report | 2019 Year In Review & 2020 Outlook | Colliers International | Minneapolis-St. Paul Multifamily Investment Sales Report | 2019 Year In Review & 2020 Outlook | Colliers International | Minneapolis-St. Paul Significant Multifamily Sale Activity Significant Multifamily Sale Activity

YEAR SIZE SALE PRICE YEAR SIZE SALE PRICE DATE PROPERTY CITY SELLER BUYER DATE PROPERTY CITY SELLER BUYER BUILT (UNITS) PRICE PER UNIT BUILT (UNITS) PRICE PER UNIT

Jun-19 Hampshire Hills Bloomington 1986 534 Investcorp Oaktree Capital Management LP $83,600,000 $156,554 Mar-19 Cedarvale Highlands Eagan 1976 108 Steven Scott Management Habitat Company $12,162,400 $112,615

CommonBond Communities Sep-19 Burlington Apartments Saint Paul 1988 438 Abacus Capital Group White Oak Partners $81,000,000 $184,932 Sep-19 Stonehouse Square Minneapolis 1900 71 Diversified Equities Corporation $11,000,000 $154,930 Corporation Inver Grove Jan-19 Southview Gables Apartments 1987 424 White Oak Partners Greystar Real Estate Partners $69,750,000 $164,505 Heights Apr-19 Lowry Hill Apartments Minneapolis 1957 89 Sidal Realty Classic City Apartments $10,800,000 $121,348

Eaton Vance Real Estate Nov-19 Wyngate Townhomes Burnsville 2002 50 Timberland Partners Birge and Held $10,600,000 $212,000 Dec-19 Loden Edina 2018 246 The OPUS Group $68,674,000 $279,163 Investment Group Jul-19 Holmes Greenway Minneapolis 1983 54 Diversified Equities Corporation Vitus Group $9,750,000 $180,556 Nov-19 Bolero Flats Minneapolis 1983 259 TH Real Estate (Nuveen) Sage Apartment Communities $56,850,000 $219,498 May-19 President Apartments Minneapolis 1928 92 Kevin McMullen Mint Properties $9,090,000 $98,804

Jul-19 Uptown at City Walk Woodbury 2011 245 LeCesse Development Connor Group $55,707,000 $227,376 Monarch Investment and Apr-19 The Fountains in the Park Brooklyn Park 1967 96 Bader Development $8,900,000 $92,708 Management Group Sep-19 Flux Minneapolis 2012 216 Greco TH Real Estate (Nuveen) $54,000,000 $250,000 Mar-19 Washington Square White Bear Lake 1978 81 Cambridge Apartments Inc Bigos Management $8,100,000 $100,000 Jul-19 Southwind Village Burnsville 1989 320 Investcorp Birge and Held $53,500,000 $167,188 Sage Apartment Communities / Feb-19 Grandview Terrace Mound 1970 88 Halverson & Blaiser Group $8,000,000 $90,909 Investment Property Group Jul-19 Flats of City Walk Woodbury 2006 208 LeCesse Development Connor Group $51,370,500 $246,974 Feb-19 Timberland Valley Shakopee 1999 60 Timberland Partners Nationwide Housing Corporation $7,940,000 $132,333 Jan-19 Crystal Village Crystal 1967 460 BT&A Construction Wall Companies $51,250,000 $111,413 May-19 Fuller Apartments Saint Paul 1962 84 Pro One Management EIG Property Management $7,182,000 $85,500 Oct-19 Junction Flats Minneapolis 2014 182 Greystar Real Estate Partners TH Real Estate (Nuveen) $50,000,000 $274,725 Jul-19 Marshall Street Apartments Minneapolis 1971 40 Sentinel Real Estate Corporation Hartley Properties, Inc. $6,600,000 $165,000 Dec-19 Revel Minneapolis 2017 125 The Carlyle Group Slosburg Company $48,919,000 $391,352 Dec-19 Kingbay Properties Portfolio Minneapolis - 80 Kingbay Properties Mint Properties $6,400,000 $80,000 Aug-19 Seasons Villa Woodbury 1987 214 Hans Hagen Homes Boston Capital Corp $45,600,000 $213,084 Mar-19 Oliver & Wendell Minneapolis 1960 42 Chilgren's Family Childrens' Trust North Bay Companies $5,800,000 $138,095 Feb-19 Southfork Townhomes Lakeville 1988 272 Healey Ramme Company IRET $44,000,000 $161,765 Dec-19 Pike Lake Plaza New Brighton 1969 64 Mohamed El Gamal QT Commercial $5,755,000 $89,922 Dec-19 Village Park of Bloomington Bloomington 1969 306 City Club Apartments Aeon $43,500,000 $142,157 Jun-19 Parklawn Court Edina 1965 40 Badzin Fern L Premier Properties $5,150,000 $128,750 Mar-19 University Village Minneapolis 1999 199 J.A. Wedum Foundation University of Minnesota & Regents $43,000,000 $216,080 Dec-19 311 Kenwood Minneapolis 1966 32 NHH Properties Atlantis Holdings $5,000,000 $156,250

Saint Louis Feb-19 Berkshire Central Blaine 2017 191 Schafer Richardson Berkshire Group $37,400,000 $195,812 Apr-19 Central Park West Phase II Site 2018 199 Dekel Capital Greystar Real Estate Partners $4,970,000 $24,975 Park Saint Louis Nov-19 Avana on Seven 1985 167 LivCor (Blackstone) Goodman Real Estate $36,500,000 $218,563 Inver Grove Twin Cities Housing Development Park Jun-19 Prairie Estate Townhomes 1980 40 Lasson Management $4,700,000 $117,500 Heights Corporation Jul-19 Lake Calhoun Flats Minneapolis 2006 158 L&B Realty Advisors Weidner Apartment Homes $33,000,000 $208,861 Jul-19 EMHA Investments Portfolio St. Paul - 64 EMHA Investments LLC BB Housing $4,600,000 $71,875 Sep-19 Eastwood Ridge Rochester 2016 218 Schafer Richardson Timberland Partners $30,500,000 $139,908 Sep-19 Fairfield Apartments Falcon Heights 1969 36 John Stiehm Lexmar Properties $4,500,000 $125,000 Just Home Apartment Jul-19 Various - 224 Just Home Property Aeon $26,900,000 $120,089 Portfolio Jun-19 Commodore Apartments Minneapolis 1920 40 Siegel Associates Sentinel Real Estate Corporation $4,500,000 $112,500 Saint Louis Jan-19 The Laurel Golden Valley 2004 86 BT&A Construction Scott Weber $26,500,000 $308,140 May-19 Knollwood Estates 1960 36 Sela Investments Innovative Properties $4,455,000 $123,750 Park Sep-19 Parkview Apartments Minneapolis 1971 223 Sage Apartment Communities DeSola Capital Group $26,000,000 $116,592 Jun-19 500 West Franklin Ave Minneapolis 2004 18 Wedgewood Real Estate LLC Riley Companies LP $4,140,000 $230,000

Sep-19 Riverwalk Townhomes & Flats Minneapolis 1900 96 Goodman Real Estate IRET $26,000,000 $270,833 Aug-19 Willow Greens Apartments Edina 1968 22 Campbell Properties WG LLC $4,070,000 $185,000

Apr-19 Mezzo Minneapolis 2018 110 Roers Investments DH Gustafson Company $24,550,000 $223,182 Sep-19 Chowen Bend Townhomes Burnsville 1981 32 Dominium Metis $4,050,000 $126,563

Oct-19 Lauren Uptown Portfolio Minneapolis - 115 Sidal Realty Hornig Companies, Inc. $17,400,000 $151,304 Aug-19 4429 Nicollet Ave Minneapolis 1921 29 Shree Investments LLC Lion Rock Properties $3,952,500 $136,293

Oct-19 Bay Point Lake Eden Prairie 1984 114 SM Engineering FPA $17,000,000 $149,123 Jun-19 ENL Apartments Minneapolis 2012 18 Haastrup Clement A Fontana Thomas L $3,946,750 $219,264

Jun-19 The Buckingham Apartments Minneapolis 1920 123 Siegel Associates Sentinel Real Estate Corporation $16,600,000 $134,959 Sep-19 RJ Homes Apartment Portfolio Minneapolis - 33 RJ Homes LLC Regan Real Estate LLC $3,900,000 $118,182

Saint Louis Jul-19 Oak Park Village 1978 100 Diversified Equities Corporation Vitus Group $15,750,000 $157,500 Feb-19 West Hyacinth Apartments Saint Paul 1972 52 Hyacinth Properties LLC Hempel Properties $3,891,638 $74,839 Park South Highland Park Jan-19 Saint Paul 1964 50 Montevideo Real Estate, LLC Paster Properties $3,850,000 Jul-19 Lodge at Little Canada Little Canada 2003 79 Sherman Associates Highland Management Group Inc $15,700,000 $198,734 Apartments $77,000

Granite Manor/Runestone Revocable Trust of Lawrence Jul-19 Alexandria 2013 131 PSD Land Development Partner Apartments $15,519,000 $118,466 Nov-19 Strandine Trust Portfolio Minneapolis 35 Union Park Management $3,500,000 Apartments - Strandine & Annette Strandine $100,000

Sep-19 Brunsfield North Loop Minneapolis 2013 47 Brunsfield Group Reynolds Investment Group $14,650,000 $311,702 Jul-19 Glacier Yellowstone Apartments Bloomington 1964 30 Spande Family Premier Properties $3,450,000 $115,000

Jul-19 Blaine Town Square Blaine 2004 87 Sherman Associates Highland Management Group Inc $14,500,000 $166,667 Jan-19 Townhomes at Victoria Park Saint Paul 2007 13 Superior Senior Living LLC Northstar Trust LLC $3,425,000 $263,462

Jun-19 Blaisdell Housing Portfolio Minneapolis - 179 Todd Urness Sage Apartment Communities $14,500,000 $81,006 Apr-19 Twin Lakes Robbinsdale 1971 36 Genesis Property Management Wallman Properties $3,420,000 $95,000

Mar-19 Curve Crest Villas Stillwater 2002 90 Curve Crest Villa LP Wishrock Group $12,180,000 $135,333 Dec-19 525 10th Ave SE Minneapolis 2013 10 North Bay Companies Endeavor Investments $3,375,000 $337,500

Global Reach

FOR MORE INFORMATION CONTACT:

TED BICKEL, J.D. JEFF BUDISH Senior Vice President Senior Vice President 952 837 3097 952 897 7755 [email protected] [email protected] colliersinvestmentservices.com

Colliers International | 4350 Baker Road, Suite 400 | Minnetonka, MN 55343

The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report. © 2020, Colliers International.

Multifamily Investment Sales Report | 2019 Year In Review & 2020 Outlook | Colliers International | Minneapolis-St. Paul