SOUTHEAST SNAPSHOT, DECEMBER 2008

Lexington Multifamily Market

Despite this year’s challenging economic environment, developers continue to successfully bet on the Lexington multifamily market. According to U.S. Census Bureau data, multifamily building permits in the city for the year totaled 978 through September. In October, the National Apartment Association even named Lexington among the top three cities in the nation for year-over-year gains in multifamily permits. Multifamily permits were up 393.2 percent in the first half of 2008.

The majority of these permits are being issued for projects in the downtown or college areas. During the last 3 years, approximately 750 new residential units spread across 20 different projects have been added or are slated for development. These projects will sprout up in Lexington’s core CBD and the eastern edge of the University of Kentucky’s campus. Historic industrial buildings have been converted to upscale lofts, and luxury student housing complexes have replaced what once were blocks of vacant tobacco warehouses. Trendy mixed-use projects are bustling with activity.

One notable mixed-use project is South Hill Group’s CenterCourt, which sits at the intersection of the Avenue of Champions and South Upper Street. The development’s first phase consisted of 72 units and was completed in mid-2007. It sold out rather quickly. The second phase is presently under construction and will contain 84 units with prices ranging between $162,000 and $539,000. About 60 percent of these units are already sold or in contract.

In addition to the downtown development, there are two significant garden apartment communities under construction in the suburbs. Anderson Communities is finishing construction on the second phase of Townley Park, a 216-unit project, which is scheduled for completion in the spring of 2009. This property contains one- and two-bedroom units, which rent for $615 to $800 per month. The second project being built is a 316-unit, Class A apartment community known as Forty 57 at Glassford. The project is located on the southwest side of town. This property is being undertaken by RML Construction, a local developer and owner of some of Lexington’s finest garden-style apartment communities. Leasing on the 168-unit first phase is expected to get underway in February or March.

Multifamily fundamentals remained on the upswing in 2008. However, some property managers were reporting softer leasing traffic and deteriorating credit on new tenant applicants in the fourth quarter. REIS surveys show the average vacancy rate in the third quarter at 6.3 percent, down from 7.4 percent a year earlier. Furthermore, average rent growth for the year hovered around 2 percent. Studio units went for an average of $1.02 per square foot on the high end, and three-bedroom units rented for $0.70 per square foot on the low end. 

In 2008, sales of Lexington apartment complexes were down sharply, mirroring the nationwide 59 percent decline in garden apartment sales volume as reported by Real Capital Analytics in October. According to Sperry Van Ness research, nine separate properties traded hands in Lexington, placing total sales volume at $58,765,000, which is down 64 percent in terms of volume and 48 percent by number of properties. Price per unit was relatively unchanged from its 2007 average of $49,948. Out-state investors continued to dominate acquisitions, acquiring eight of the nine properties that were sold.

— Todd C. Harrett is an advisor in the Louisville office of Sperry Van Ness.

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