Despite record low interest rates driving homeownership to all-time highs, the summer of 2002 found Chattanooga, Tennessee’s multifamily market occupancy rates the same as the summer of 2001 — 94 percent. The low interest rates and new homebuyers did, however, produce a drop in rents. The average rent per square foot in summer 2001 was $0.58. During the winter of 2001, rent averages were up to $0.62 per foot, dropping by only 1 cent during the summer of 2002 (The Community Research Council).

Another factor contributing to the drop in rents was the large increase of on-campus student housing at The University of Tennessee at Chattanooga (UTC). The University is nearing completion of UTC Place, a $56 million development for student housing. The $18 million Phase I consists of 455 beds and was completed in 2001. Phase II, at $37 million, was completed in 2002 and consists of 1,039 beds — a major development for the Chattanooga multifamily market. Pete Cooper of the Community Foundation of Greater Chattanooga reports that the $23 million Phase III is scheduled for delivery in August 2004. UTC Place is a development of Place Collegiate Properties, a private corporation.

Over the last 10 years, historic downtown Chattanooga has experienced a major revitalization, creating a warm, welcoming ambience. With such a beautiful downtown area, Chattanooga is seeing much activity by private and non-profit organizations refurbishing historical buildings, creating loft-like apartments, garden apartments and single-family homes. Additionally, current city administration, including the mayor, Chattanooga Chamber of Commerce and Rivercity Company, are working to increase downtown housing. Much of the activity is occurring in the Southside and Northshore submarkets. Recent apartment projects completed in the Southside area are St. Johns Hotel, 14 units; The Bread Factory, 24 units; the Southern Railway, 22 units; and Cowart Place, 27 units.

The Loveman’s building in downtown Chattanooga is presently being refurbished to feature 28 condo/townhome units with completion scheduled for first quarter 2003. The city has a goal to add 750 new housing units downtown within the next 10 years. One objective is to put 250 units on the downtown riverfront in the Tennessee Aquarium area. An appealing perk drawing builders and developers to the downtown area is the property tax reciprocity program offered by the city to those that will refurbish housing in the central business district.

Approximately $47.5 million has been invested in renovations to Chattanooga’s affordable housing in recent years. In 2000, Chattanooga’s largest public housing development, Spencer J. McCallie Homes, was approved for a $35 million Hope VI federal grant to completely renovate the 608-unit complex. Demolition is underway now, and soon construction will start on a new 435-unit complex. The 18-story, 136-unit Dogwood Manor, previously the Jaycees Tower II, underwent a $5.6 million renovation. The 42-year-old Mary Walker Towers had a $2.4 million makeover, which followed $285,000 spent in 1999. The Chattanooga Housing Authority spent $520,000 on the 98-unit Greenwood Terrace complex. The 200-unit Gateway Towers received a $3.6 million renovation in 2001.

In addition to extensive refurbishing projects, there are several new projects planned for Chattanooga. In February 2002, the Regional Planning Commission approved the rezoning of 20 acres at 7510 Shallowford for the Zaremba Residential Company’s development of 48 townhomes and condos and 252 garden apartments. Mike Hedges of Double H Investment Company is scheduled to start on a 140-unit Tennessee Housing Development Agency (THDA) complex in the East Ridge submarket. John Murphy of Murphy Development recently purchased 10.6 acres in the Hixson/Ashland Terrace submarket for a 120-unit THDA project to be completed in 2004. The Electric Power Board recently started construction on its new building, and residential units are slated for its vacated building. In January, Southern Adventist University approved the plan for the sale of $14.5 million in bonds for the construction of a 260-bed dormitory. Completion is set for 2004.

Recent multifamily projects include Pinnacle Homes at Harbour Town View, a development by Colonial Commercial Development, Inc. of Montgomery, Alabama. Located on the shores of scenic Lake Chickamauga, the luxury $22 million development began renting its 308 units in April 2002.

Chattanooga’s multifamily market survived 2002 in good form compared to larger markets like Atlanta, which has experienced 10.3 percent vacancy and falling rents, according to Marcus & Millicap. Vacancies should peak in the first half of 2003, and apartment demands should increase as the economy recovers, interest rates rise and first-time home-buying abates, according to Robert Hunter, the broker for GVA Hunter.

New multifamily housing growth will be slow in the Chattanooga market because there is limited acreage currently zoned for apartments. Additionally, as in many cities, the rezoning process can be time consuming and labor intensive.

Based on historical trends and new projects reaching completion, the multifamily market in Chattanooga should remain stable in 2003, allowing for moderate rent increases.

Courtesy of Robert K. Fisher, executive vice president of GVA Hunter in Chattanooga.


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