University District a hot submarket for multifamily investors
Student housing “are some of the hottest deals in Reno,” said Trevor Richardson, an agent with Dickson Commercial Group who specializes in multifamily.
“The university is growing at an enormous rate, it has the highest amount of students that it has ever had and they are only looking to continue to expand over the next three to four years,” Richardson said in a phone interview with NNBW.
The University of Nevada, Reno now serves nearly 21,000 students creating a demand for additional student housing in the area. However, this demand is being hindered by the amount of developable land around the university.
“You have student housing developers really excited about the growth, but they find it challenging with the amount of development sites around there,” Richardson said. Developers must be creative with land that is available.
“So you are having developers having to go vertical,” Richardson said.
One example is the 7-story, 105-unit complex currently under construction called Identity Reno. The project is located at 1551 N. Virginia St. and is slated to be complete before the fall 2017 semester.
“We don’t have a lot of dense projects in Reno. That is probably one of the more dense ones we have going on right now,” he said.
Identity Reno is one of several new student housing developments currently being built around the university. Others include Towers at Pink Hill, a 23-unit student housing development located on North Virginia at 14th Street, and Wolf Run East, a 105-unit development on the east side of the university located at 1980 Valley Road.
The demand for student housing is also elevating the price for existing complexes around the university. Richardson explained that property owners know that this type of housing is in demand and they are setting the prices for property in the area very high.
Richardson and Tom Fennell, of Dickson Commercial Group, represent the seller in the sale of a 24-unit assemblage of three apartment buildings, a duplex and a single-family home, which sold for $2,995,545 in the first quarter of 2017.
“Developers and investors want to be in that submarket,” Aiman Noursoultanova, senior vice president of investment properties with CBRE, said about the University District. Noursoultanova explained that CBRE was involved with the transactions of three of the large student housing complexes north of the university that are now called The Republic, The Highlands and Sterling Summit. They are continuing to see interest from investors in the area.
“There are a number of investor groups looking to enter the submarket who have not been able to,” she said.
Noursoultanova said there is potential for student housing south of the university; however, there have been studies that show that students do not want to cross I-80.
“Students are not ready to cross over the highway yet,” she said.
UNR plans for future development south of the university, but still north of I-80, in what is called the Gateway Precinct, as outlined in the university’s master plan. The Gateway Precinct is designed to serve as an extension of the campus as it continues to grow and connect the university and downtown Reno. The extension could be an opportunity for more off-student housing in the future.
“That just hasn’t happened yet,” Noursoultanova said.
Additionally, the Reno multifamily market in general is continuing to be in hot demand. The high demand and low vacancy rates are driving rents to historic rates.
Noursoultanova explained that Reno’s multifamily rents have historically been in the $800 – $850 category. Those rates are quickly becoming a thing of the past.
The average rent rose to $1,111 in the first quarter of 2017, as reported by CBRE. This is a 4.22 percent increase from the average rent of $1,066 reported in the fourth quarter of 2016 and a 12.22 percent year-over-year increase from the first quarter of 2016. While the average vacancy rate decreased from 2.93 percent in the fourth quarter of 2016 to 2.23 percent in the first quarter of 2017.
The strong job growth and the lack of inventory are the driving forces behind the increase in prices.
According to Noursoultanova, as rents continue to increase people will begin to look to neighboring areas such as Sparks, North Valleys, Carson City and more. She said that they are already seeing Sparks benefit due to its proximity to the Tahoe Reno Industrial Center.
However, Reno is still an affordable market compared to California markets.
“We still have some ways to go to catch up to Sacramento, San Jose and other west coast markets,” Noursoultanova said.
New construction will help to alleviate the rate of rent increases.There are a reported 2,713 units under construction and another 6,658 units in the planning stages.
“We have a lot in the pipeline,” Noursoultanova said. “If all of them are going to materialize is the question.”
She anticipates the Reno multifamily market to continue to gain national attention from investors and for rent growth to remain strong with the possibility of vacancy rates increasing as new construction projects are delivered toward the end of the year.