Apartment complexes have become a hot commodity in Forsyth County.

Fifteen existing ones have been sold over the past 12 months for a combined $134.2 million, while several hundred units are under construction or recently completed.

The biggest apartment complex sale occurred May 24 when Chapel Hill residential-investment company Eller Capital Partners spent $16.42 million to buy 288-unit Ashton Oaks in Winston-Salem.

Driving the selling and building trends, according to economists, are millennials — those born between 1981 and 1996 who are now between the ages of 23 and 38.

“The sudden interest in speculative apartment development is really a risk-capital response to millennial demographic and psychographic trends in the last decade,” said Tony Plath, retired finance professor at UNC Charlotte.

“The current generation of young adults is simply postponing milestone events, like marriage, buying a house and having kids until well into their 30s.”

The Urban Institute said in a 2018 millennial housing report that the marriage rate among young adults has fallen from 52.3% in 1990 to 38.5% in 2015.

“Even for white households married with children and with substantial household income, the homeownership rate is 2 to 3 percentage points lower than for similar households in the previous two generations, suggesting an attitudinal shift toward homeownership,” the institute reported.

“These trends drive up the sustainable demand for apartment housing, raising rental rates and increasing the returns to owners of rental properties,” Plath said.

Attom Data Solutions reported that for the first quarter of 2019, it was cheaper for individuals in North Carolina to rent a three-bedroom apartment than buy a three-bedroom home within counties that had at least 500 home sales.

However, rent prices are rising faster than home prices in many of the counties, “so we may see a shift,” Attom spokeswoman Jennifer von Pohlmann said.

“An apartment complex offers convenience to millennials with resort-like features, such as pools, gyms and other amenities. Most apartments are also in close proximity and walking distance to grocery stores, coffee shops and restaurants, making it even more attractive.”

A local example of that residential blend is Clemmons Town Center Apartments, a $22.5 million, 312-unit complex off Lewisville-Clemmons Road and Interstate 40 in Clemmons.

The complex is within walking distance of the Jerry Long YMCA, a Publix grocery store, several fast-food and sit-down restaurants, and a Planet Fitness.

The development played a key role in jump-starting the recent apartment construction wave in Forsyth since debuting in 2015, as well as helping spur the fleshing out of the adjacent Clemmons Town Center retail campus.

Chris Parr, who developed the Clemmons apartment complex, said, “I feel millennials are going to be renters for quite a while,” along with “a tremendous amount of seniors who have migrated to become renters instead of homeowners.”

“That will continue into the foreseeable future.”

Parr said investors “are paying hefty sums for well-located (apartment complex) assets. I also see this trend continuing.

“Apartment construction costs are out of control. I can’t see where I would be able to sell one of my properties and purchase something new or build anything new with the proceeds.

“It makes sense for a lot of investors to sit tight and hold on to what they have. That’s my plan,” Parr said.

Out-of-state buyers

Yet, there have been six apartment-complex purchases in Forsyth over the past three months, all by out-of-region and out-of-state buyers.

“Investors are trying to find what few pockets of value there are left in the apartment market,” said Mark Vitner, a senior economist for Wells Fargo Securities.

“Prices have been bid up so much in larger markets, such as Charlotte, Raleigh and Nashville, that investors are increasingly looking to markets that have been overlooked and show great potential for growth.

“Winston-Salem and Greensboro are at the top of the list of overlooked markets.”

One example is Eller Capital Partners’ purchase of Ashton Oaks — the Chapel Hill group’s first significant real-estate Triad deal, given its focus on the Charlotte and Triangle markets.

Daniel Eller, the company’s president and chief executive, said the property’s location — 2030 Northcliffe Drive, about a mile northeast of Wake Forest University — and the ability to increase its value by making major improvements were the two primary factors in its decision to buy the complex.

"As compared to earlier generational cohorts, more millennials are choosing to rent and those who do rent are doing so for longer periods of time," Eller said.

"By 2020, millennials and Generation Z will comprise more than 50% of the U.S. population, but will control less than 10% of its net household wealth.

"On the other end of the spectrum, a larger percentage of the baby boomer cohort is beginning to favor rentals," Eller said. "According to the Harvard University Joint Center for Housing Studies, over the last decade more than half of the new renters to enter the apartment market were baby boomers.

Eller said he believes "an extremely favorable supply and demand dynamic" will be sustained in at least the short term.

"About 50% of the total new U.S. apartment demand over the next decade is projected to occur in the Southeast and Texas," he said.

Weiss Investment Group, based in East Rutherford, N.J., offered a similar reasoning in discussing why it chose in December to spend $11.5 million on the Carolina Woods apartment community near Bethabara Park. It was the group’s first apartment complex purchase outside the Northeast.

Weiss said it is conducting a major renovation initiative — with an intriguing twist — as part of its push into the North Carolina and Southeast metro markets.

The complex, built in 1972, is at 1520 Woods Road in Winston-Salem and features 209 units in six buildings.

Yale Weiss, an investor in the group, said existing tenants “will be given the option of taking a newly renovated unit or having upgrades done to their existing unit.”

“We’re making a seismic shift in the company by putting more of our focus into urban markets in the Carolinas and the Southeast.

“In essence, we’re building a new company with the effort, and Carolina Woods represents the embodiment of that shift.”

“We believe there is lot of value in Winston-Salem, Greensboro and the Carolinas as a whole as millennials in particular flock to the Southeast,” Weiss said.

What’s behind the trend?

Among other reasons behind the apartment trends are:

  • Millennials are delaying home buying by choice because of significant, if not crushing, student-loan debt.

“Increasing education debt has reduced millennials’ likelihood of owning a home, as debt increases their debt-to-income ratios and lowers their remaining income to save for a down payment,” according to the Urban Institute.

  • Fewer homes being built and more baby boomers (those born between 1946 and 1964) opting to remain in their home;

Freddie Mac forecasts just a 1% increase in single-family home construction nationally this year, with apartment occupancy rates remaining in the 95% range and rent rates rising between 2% and 3% before slowing in 2020.

  • Banks, credit unions and other lenders maintaining tighter standards, particularly on the level of required down payment amounts;
  • Higher mortgage rates compared with the near-historic lows since the Great Recession of 2008-11, along with higher rental costs;
  • Individuals, including baby boomers, wanting an urban, downtown lifestyle that doesn’t yield itself easily to home ownership;

“Millennials prefer living in high-cost cities, where housing supply is inelastic,” the Urban Institute found. “Within a city, millennials prefer living in counties with a more urban environment, where the house prices have increased more than in the surrounding areas.

“The shift in geographic preference is mostly observed among highly educated millennials.”

  • Increasing availability of suburban land typically dedicated to housing developments, such as the 252-unit Brookberry Park apartment complex off Meadowlark Drive in western Forsyth.

“Millennials came of age during the aftermath of the Great Recession and the impact of the housing bubble still has lingering aftereffects on their mentality,” said Zagros Madjd-Sadjadi, an economics professor at Winston-Salem State University.

“We are seeing fewer childbirths among this generation, so there is less need for single-family dwellings.”

Local apartment projects

Among the more high-profile apartment projects of recent years is The Residences @ the R.J. Reynolds Building that debuted in March 2016.

The seventh through 19th floors of the historic former Reynolds headquarters building feature 148 one- and two-bedroom apartments, along with social and recreational amenities that residents will share with guests in the Kimpton Cardinal Hotel. Because of superstitions of the time when the building was constructed, there is no 13th floor.

Perhaps the most millennial-linked apartment complex debuted in 2015 with Charlotte-based Grubb Properties and Samet Corp.’s 205-unit Link Apartments Brookstown project.

The complex is bordered by West First Street, Park Circle and Peters Creek Parkway with BB&T Ballpark across the street.

Those apartments were geared toward young professionals and millennials working in and around downtown Winston-Salem.

Grubb has a proposed second phase of the GMAC Building renovation project off Spruce Street that would replace the smaller of the two buildings with street-level retail space and 240 apartments, 30% of which are being designated as affordable housing units.

There’s a planned residential development of up to 400 apartments and 200 single-family houses in southeast Forsyth within the High Point city limits. The complex by Charlotte developer Dennis Bunker and KMBunker Holdings LLC would be near N.C. 66, southwest of the U.S. 311/Interstate 74 corridor.

Mayfair Street Partners of Atlanta committed in September to convert the former 37-acre L.A. Reynolds Garden Showcase site on Styers Ferry Road into a mixed-use development that would have 229 apartments and about 47,000 square feet of commercial and clubhouse uses in a total of eight buildings.

There’s also the 216-unit Briarleigh Park at 401 Park Ridge Lane, off Country Club Road in Winston-Salem.

In 2018, the Mill 800 complex debuted its first phase of 170 apartments in the former Chatham Manufacturing Co. textile plant at 800 Chatham Road.

The final of its three phases would convert Building 23 into 46 loft apartments by summer 2020. The building was once used by Western Electric for World War II aeronautics defense-technology development.

Impact of student loans

Online housing publication Updater said “many millennials have drawn short straws financially.”

“With the rise in student loan debt, 46% of millennials now live with student loans with a median debt of $27,000. This leads more millennials to rent for longer periods of time or move back home to save money.

Jon Borlkk, with the Greensboro Regional Realtors Association, said that “student debt is causing a seven-year delay in the ability to buy a home. About 33% of millennials are buying homes.”

Updater said the economic recollections of the Great Recession are strong with millennials.

“They tend to search for homes that they could still afford with a pay-cut or on minimum wage in the event that the economy takes a hit,” Updater said. “Home price will usually make or break a decision before home size will.”

Madjd-Sadjadi said he believes the recent apartment complex buying spree is “at least partially reflective of the stability of our market.”

“North Carolina was one of the few states that did not see above-average price appreciation in its housing during the last expansion, so there is less financial risk going forward as investors re-position for the end of what will likely end up being the longest U.S. economic expansion in history.”

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rcraver@wsjournal.com 336-727-7376 @rcraverWSJ

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