JC Reindl

Detroit Free Press

Demand for market-rate housing in and around downtown Detroit has been outpacing supply for several years, encouraging developers to take a chance on the city's nascent revival and dive headlong into constructing new apartments.

Now a major wave of these residential projects — roughly 700 units from early in the year through this summer — are finally opening their doors. The outcome so far is surpassing many people's already high expectations: multiple new buildings are full or nearly 100% leased, even before tenants are allowed to move in.

The intense demand suggests that greater downtown Detroit's rental market could support additional waves of fresh building supply and remain hot. It is also giving landlords reason to continue raising rents, although the size of the year-to-year jumps could subside as more new apartments hit the market.

One success is the newly redone Forest Arms apartments in Midtown, which was aggressively overhauled following a 2008 fire that had a fatality and nearly destroyed the 1905 building. Owner Scott Lowell said he was nervous earlier this year that his building might flood the market with its 70 apartments and have trouble filling up. But those worries proved unfounded.

By early May, the Forest Arms had snagged pre-leases for all of its apartments — well before move-in day next week. Rents for the one-bedroom units in the building range from $900 to $1,100 a month.

"It was unbelievable," Lowell said. "I had to turn down a lot of people. Even still I get three e-mails a day from people looking for housing, and they all sound like very qualified people. It burns me not to be able to place them."

Units also pre-leased fast for the new expansion to the Lofts at Merchants Row, 1247 Woodward Ave. in downtown. The last of the building's 42 apartments leased last week just before tenants started arriving. The expansion occupies an existing building that connects to the original Lofts at Merchants Row, which opened in 2004.

"It really shows you how hot the market is right now," said Jeffrey Schostak, vice president and director of development at Schostak Brothers & Co., the Lofts project's owner and developer. "Demand has certainly surpassed the supply for residential projects in the last couple years."

One piece that is largely missing from downtown Detroit's housing revival is new condo buildings.

Reasons for this include the historic difficulty in obtaining mortgage financing for Detroit condos; bad memories from the city's pre-recession condo market mini boom and subsequent bust, which forced some buildings to convert to rentals; and requirements that some redevelopment subsidies, which are popular in Detroit, be used for projects that contain rentals for a period of time, according to local developers.

"You hear all the time that people are trying to buy and it's difficult, because there are very few options," Schostak said. "It's obviously more of a renter's market. And it's tough to find places to rent, now, too."

Some take longer

Not every new apartment is leasing in record time. Two types of rentals are taking longer to fill: upscale two-bedroom units and units set aside as affordable for lower-income tenants.

The Waters Edge at Harbortown, 3500 E. Jefferson Ave., opened in January as the first new newly constructed apartment building in years on Detroit's waterfront, about 1.5 miles east of the Renaissance Center. The building has 134 market-rate units, most of them two-bedroom units that rent for $1,703 to $1,802 per month. Now five months since opening, there are still 42 two-bedroom units unleased, according to the building's website. (The one- and three-bedroom units are all taken.)

"Being that we just opened Jan. 4, I think that's phenomenal," said Trena Edmondson, a regional property manager for Denver-based Triton Properties, the project's developer. "The anticipated 100% occupancy date is July 31."

At the 129-unit Strathmore building in Midtown, all 73 of the market-rate apartments are full. "They leased out before we even opened," said property manager Derrell Jackson. Rates ranged from $950 to $1,100 a month for the one-bedroom units. However, of the 56 units that are set aside as affordable and reserved for lower-income tenants, about 40 remained unleased as of last week.

Jackson said there are several challenges to filling those affordable units, including a lengthier application process, income limits and credit and background checks. The income maximums vary based on household size, but equal roughly $28,000 a year for a single person, he said.

"A lot of people make more than they think they do," Jackson said. Applications for the affordable units can be picked up in the building's leasing office at 70 W. Alexandrine.

Such affordable units have become common in new Detroit-area apartment projects that receive various tax credits or other financial assistance. The tenants who occupy them get the same quality of apartment and building amenities as tenants who pay the full market rate. So far in Detroit, there are no special perks for the full-rate tenants or separate building entrances for affordable-rate tenants, sometimes called a "poor door" in housing markets where they exist.

Fastest to lease

The fastest apartments to lease out in Detroit's new buildings are studios and smaller one-bedroom units, leasing agents say. At the new 58-unit Regis Houze, a former wing of the Hotel St. Regis in New Center that was completely redone, the first apartments to go were the eight micro studios sized at 310 square feet ($543 a month rent) and 365 square feet ($639 rent).

The remaining apartments, mostly one-bedrooms, leased out several weeks after the building opened in April. Their rates were $919 a month for the 525-square-foot units and $1,050 for the 600-square-foot units, with optional gated parking an extra $100 a month.

Regis Houze is the first of four Detroit apartment projects planned by Barbat Holdings. The others are the 116-unit Briggs Houze in downtown's former Hotel Briggs, the 107-unit Gabriel Houze on Michigan Avenue and the 96-unit Philip Houze on Clifford. Gabriel and Philip are to open next year.

Briggs Houze, which rises 18 floors, is to open this July or August with rents at $2 per square foot on its lower floors and slightly above that rate on upper floors. Prior to late 2014, the only downtown apartments at the $2 per-square-foot mark were unique luxury units.

Keeley Sanders, a manager for Briggs Houze, said units are still available but going fast.

"People are pre-leasing sight unseen," she said last week while showing off a completed model apartment. "We have a lot of people coming in from out of state."

Will supply overtake demand?

Dave Ebner, Barbat Holdings' chief financial officer, says that the yearly increases in downtown-area apartment rents will eventually slow as more apartments get built and a somewhat better balance is struck between demand and supply.

"As additional units come on board, maybe the rates will only increase 3% to 5% instead of the 10%, 15%, 20% you might have seen in the last couple years," Ebner said.

Those filling the new Detroit apartments are typically young professionals as well as some empty nesters, leasing agents say.

Jonathan Malilay, 31, and his girlfriend, Joyce Balagot, on Friday were the first tenants to start moving in to the expanded Lofts at Merchants Row in downtown. They finished graduate school three years ago at Wayne State University and had been living with their respective parents, Malilay in Windsor and Balagot in St. Clair Shores, while working and saving money. They're glad they reserved an early spot in the new building, which became fully leased last week as well.

"We've been a part of the city for the past 10 years during all of our schooling," Malilay said. "So to see everything develop as it has, we just wanted to be a part of it and actually live down here."

Contact JC Reindl: 313-222-6631 or jcreindl@freepress.com. Follow him on Twitter@JCReindl.