REGIONAL MARKETS: MIDWEST

APARTMENT FINANCE TODAY • JANUARY 2008

Slow But Steady

Several large area employers are expanding, a good sign for downtown and West Des Moines properties.

By Jerry Ascierto

Des Moines—A booming submarket in West Des Moines and strong occupancies in the city center will ensure a steady 2008 for Iowa’s capital city.

The city has a diverse economy that makes it stand out from other Midwestern cities. Many insurance and financial services companies like Principal Financial Group are headquartered in the area, and last year, Forbes ranked Des Moines fourth on its list of “Best Places for Business and Careers.”

The suburb of West Des Moines in particular is expanding rapidly. Wells Fargo recently opened a new headquarters for its consumer finance and home mortgage businesses there, which is expected to employ about 1,500. Developer The Ryan Cos. will open a new office park nearby in 2008, called Jordan West Office Park, a 37-acre development. Another significant development in the area is the Jordan Creek Town Center, a 200- acre mall that is the largest in the state, which opened in 2004.

“It’s the most booming submarket, not just in Des Moines but in the entire state of Iowa,” said Philip Perry, CEO of multifamily developer Perry Reid Properties. “West Des Moines has seen some incredibly rapid growth recently.”

Perry Reid manages about 3,500 units throughout Iowa, Nebraska, and Kansas, with 524 units in the Des Moines area. In November 2007, the company put the finishing touches on the Mansions at Jordan Creek, a 10- building, 140-unit Class A apartment community in West Des Moines. The company secured a $12 million construction loan for the development from TierOne Bank, and work began in January 2006.

The Mansions at Jordan Creek contain 71 one-bedroom units, 58 twobedroom units, and 11 three-bedroom units. Rents range from $885 to $1,375. Amenities include a pool, a bike path, an exercise facility, a clubroom, washers and dryers in every unit, and garages for each unit.

Perry has seen about a 95 percent occupancy rate in its Des Moines-area properties, and said that the market has been in an upswing. The company’s 192-unit Mansions at Hemingway Apartments, in the suburb of Johnston northwest of Des Moines, hasn’t had to offer any concessions in 2007. “Two years ago, a couple of months’ free rent was pretty common throughout the city,” said Perry. “But at the Hemingway, for instance, we’re not offering any now.”

Slow and steady wins the race

Overall, the metro’s multifamily market exhibited good momentum heading into 2008. In the fourth quarter of 2007, about two-thirds of the properties in Des Moines reported rent growth, according to marketresearch firm Reis, Inc.

Rents in the metro area grew about 1.5 percent in 2007, and averaged about $673 at the end of the year. Vacancies fell about a percentage point, from 8.3 percent at year-end 2006 to about 7.4 percent in the fourth quarter of 2007, according to Reis.

A few major local employers have recently announced expansions in downtown Des Moines, which has helped to attract tenants to the city center.

In addition to its new campus in West Des Moines, Wells Fargo has expanded downtown, completing a nine-story addition to its existing headquarters in 2006. The new expansion holds about 1,500 employees. Also, Wellmark Blue Cross and Blue Shield, the state’s largest health insurer, is developing its headquarters in downtown Des Moines, which will have the capacity to hold 1,500 employees.

Hubbell Realty Co. owns and manages more than 1,200 units in the greater Des Moines area. About 130 units are located in the heart of the city, and the company has more units under way downtown.

The company has seen high occupancy levels and annual rent increases of more than 2.5 percent in its downtown properties. “We’ve maintained more than 95 percent occupancy, and rents have increased from the day they opened,” said Krista Capp, vice president of property management for the 150-year-old Hubbell Realty Co.

The company is in the final stages of development for the mixed-use MarketPlace Lofts, a 52-unit new construction development that will feature 8,000 square feet of commercial space on the ground floor. Rents will range from $570 to $1,275 when the development opens this month.

The MarketPlace Lofts are right next to another Hubbell development, the 51-unit Court Avenue Lofts. The project, a rehabilitation of a historic building that was completed at the end of 2006, has a waiting list of 113, Capp said. “I imagine we won’t have any trouble leasing up MarketPlace Lofts.”

One quirk about Iowa that developers need to consider before trying to break into the market is its tax structure. The state taxes multifamily properties at commercial property rates, which are typically much higher than multifamily tax rates in other states.