Apartments in Tucson are beginning to fill up, and developers are paying attention.
Construction is under way on a new $34 million luxury apartment complex in Oro Valley, as local developer HSL Properties capitalizes on demand from high-end renters who are nervous about buying homes or unable to get mortgages after the housing bust.
HSL, which bought a 13-acre property in Oro Valley last summer for $3.3 million, plans to complete the 288-unit complex by mid-2014, said Omar Mireles, executive vice president. Some buildings will be ready for move-in by the end of this year.
Residents get access to a movie theater, a dog park, pool and spa, a professional-grade kitchen, recreation rooms, a fitness facility and an on-site independent coffee shop, he said.
In addition to the Steam Pump project, called Encantada at Steam Pump Ranch, Oro Valley is the site of a planned 274-unit luxury apartment project from Phoenix developer Kitchell. The project will also include a retail shopping center, said Kitchell's Ryan Cochran.
With major employers in Oro Valley expanding operations, the demand for quality rental units is high, and many of the town's existing apartments are aging, said Misti Nowak, the town's communications administrator.
Oro Valley's Securaplane Technologies last month broke ground on a planned 55,000-square-foot plant in Innovation Park with plans for about 50 new employees by 2018.
And Ventana Medical Systems announced plans in 2010 to add 500 new jobs in Oro Valley.
"Our larger employers want to have attractive housing options to recruit top talent," Nowak said. "We're trying to stay competitive and provide top-notch options for residents. Coming out of the housing bubble, a lot of people are looking for rental options, so we're trying to meet that demand."
The Steam Pump project is HSL Properties' third luxury apartment development in Tucson, following the 2012 opening of Encantada at Riverside Crossing and the in-progress Encantada Dove Mountain, Mireles said.
Business at the 304-unit Riverside Crossing, 1925 W. River Road, is thriving: The resort-style complex is at maximum occupancy, Mireles said. HSL is also acquiring its third luxury apartment complex in Phoenix, he said.
VACANCY RATES DOWN
The recent surge in new apartment construction addresses a shortage of high-quality apartment rentals in Tucson, where demand for multifamily housing is high, said Bob Kaplan, principal in the multifamily group at Picor Commercial Real Estate Services.
"There's a fair amount of new apartment construction, which we've had little of for very many years," Kaplan said. "So far what they've built has been well-received."
Investment in apartment construction is up nationally, as investors have turned away from single-home projects that were less profitable after the housing bubble burst, Kaplan said.
Nationwide, apartment vacancy rates have dropped to 4.3 percent, the lowest rate in 12 years, real estate research group Reis Inc. says. The New York-based group expects 150,000 new apartment units will be completed in 2013, and that number could approach 170,000 in 2014.
"We haven't seen construction figures reach that high since 2001," senior analyst Brad Doremus said in an email.
In Tucson, vacancy rates are down to 5.7 percent for the first quarter of 2013, having declined steadily from a high of 10.7 percent in 2009, Reis' data show.
And rents in Tucson are on the rise. Effective rent in Tucson grew from $597 in 2009 to $645 in the first quarter of 2013, Reis' data show. That's higher than the pre-recession rent of $592 in the first quarter of 2007. Nationally, rents grew from $964 in 2009 to $1,054 this year.
Since the start of the housing crisis in 2008, many Americans began to view home ownership as more of a liability than an asset, said Pete Te Kampe, vice president of investments for Marcus & Millichap in Phoenix. Nationally, the recovery of the housing industry could slow growth in multifamily developments, but Te Kampe said enthusiasm for apartment rentals isn't likely to die down anytime soon.
"I don't care how much the housing market recovers; I think the apartment market does have some staying power. And investors are putting their money where their mouth is, in terms of that belief," he said. "As long as they don't get carried away and say, 'OK, now we're going to double everybody's rent,' I think that the rental market from the apartment side hasn't seen its best days yet."
AT A GLANCE
Encantada at Steam Pump Ranch.
• Location: West side of North Oracle Road, south of West Tangerine Road.
• Units: 288.
• Features: Movie theater, dog park, pool and spa, professional-grade kitchen, rec rooms, fitness center, coffee shop.
• Opening date: Late 2013.
• Rental rate: Preliminary estimates are $900 for one-bedrooms to $1,300 for three-bedrooms.
• Project cost: $34 million, including $3.3 million land- purchase price.
SOURCE: Omar Mireles, executive vice president, HSL Properties
Contact reporter Emily Bregel at firstname.lastname@example.org or 807-7774.