From the hills of North Royalton to the mid-rise apartment towers of Euclid, workers are swinging hammers, replacing sinks and tacking down carpet at levels not seen in years in Northeast Ohio multifamily properties.
Driven partly by competition from a bevy of new multifamily projects in a region that historically sees few, suites housing tenants from high-end renters by choice to low-income tenants with subsidies are getting updates.
Some improvements had been delayed by the housing bust while others are designed to meet the desires of the echo boom just graduating from college; still, others are being undertaken by new property owners.
“Ralph McGreevy, executive vice president of the Northeast Ohio Apartment Association trade group, said the renewed activity is a function of good times in the apartment industry.
“Things have never been better for apartments. Owners are investing and getting ready for what comes next,” McGreevy said. “Remember the old saying about the best time to put on a roof? It’s when the sun is shining. The sun is shining on the industry now.”
Some big dollars are involved. Take Dover Farms in North Royalton, a 300-unit complex dating from the 1980s. Owned by Oak Brook, Ill.-based JVM Realty Corp., major features of a $4.5 million renovation project have been completed but suites will continue to be renovated as they turn over in the next year.
In JVM’s case, it toyed with using the surge in the apartment market as a chance to buy new properties nationally. However, Jay Madary, JVM president and CEO, said the firm found itself looking in other cities at properties somewhat like Dover Farms and appreciated how well its properties here withstood the downturn. While thoughtful apartment owners worry about the profusion of new multifamily projects in the region, Madary said the pace in Cleveland is less than in other markets where it operates, such as Columbus.
“We’re conservative,” Madary said in a phone interview. “We realized some of the best opportunities are under our nose. There is a lot more demand and not a lot of new properties coming into the market in Northeast Ohio. We see it as a chance to make significant renovations for our tenants and our portfolio.”
JVM’s renovations went beyond cosmetic updates such as painting, Madary said. The firm took steps to enhance the properties in ways that, Madary said, will benefit the tenant and owner for years to come.
For example, at Dover Farms, JVM gutted a dated racquetball court and removed a hot tub to replace them with a contemporary fitness center complete with large-screen TVs that offer exercise programs. JVM also installed a new system for handling parcel deliveries to cope with the rise in online shopping. Managers were spending a lot of time fetching goods that were piling up in their offices since Amazon became ubiquitous.
So Dover Farms received a system called Parcel Pending, a software system that notifies tenants when they have a delivery. Tenants receive a personal identification number to open a special storage locker that contains their parcel. The system is available around-the-clock, so tenants do not have to pick up parcels during business hours.
Such steps go along with updated entrances, lobbies and suite-by-suite improvements to add value for tenants. The updates allowed the owner to receive increased rents on the properties. Renovated suites are going for about $150 more than the $800 average monthly rental before they were renovated, Madary said.
Across town, at The Drake, a five-floor apartment complex at 15830 Van Aken Blvd., Shaker Heights, an affiliate of Rock on Cleveland Opportunity Fund has invested from $4,000 to $12,000 per suite at the 1950-vintage property since buying it a year ago, according to Ned Wasserstein, managing partner of Rock On and president of Waterstone-Brainworks Capital Management, a property management firm.
“Everything leaked,” Wasserstein said. Work ranged from redoing mortar on the building’s brick exterior to adding waterproofing to the outside of the foundation.
Inside, the search for leaks required a suite-by-suite examination of every plumbing fixture to find which showers needed new bottoms. If nothing else, new valve stems were put in fixtures because of the age of the property. Rock On also installed programmable thermostats in hopes of reducing heating costs, which the building pays, by helping tenants appreciate the savings in electricity, which they pay, for air conditioning. A list of 700 building code violations has been whittled down to 100.
From half-empty a year ago, the 27-suiter now has just one three-bedroom available, and that’s because the landlord did not renew the tenant’s lease. The asking rent for it is $1,150, compared to $950 previously.
The story is similar at the much-larger Triumph Towers, 25400 Euclid Ave. in Euclid, where an affiliate of Canton-based RLI Enterprises in the past year has shooed homeless people from its stairwells, replaced light fixtures, updated suites and repaved a crater-filled parking lot since buying the property out of receivership.
Ken Ippolito, the owner of RLI, specializes in turning around severely distressed properties for resale and said he was shocked at the condition of Triumph. Thirty-two suites of the 126-unit property were empty at the inception, but it’s now full with a waiting list, said Ippolito, a long-term multifamily Cleveland-area investor who used the purchase to return to Euclid after spending the last decade turning around four buildings, some 560 suites, in Canton.
“LeBron came back and so did I,” said Ippolito, whose Jaguar bares the vanity plate “APT KING.”
There is plenty of room for improvement in rentals. At the Cleveland Tenants Organization, the second most frequent complaint triggering calls after the quest for rent assistance is the need for landlords to make improvements to the property, said Angela Shuckahosee, executive director.
Last year, the organization got 1,078 such calls, according to its annual report. CTO counsels tenants on ways to make landlords accountable, she said, but often tenants in such cases have to go to the last resort: Move.
Part of the trend in renewed multifamily makeovers is due to apartments becoming a favored investment as occupancy reached high levels and rents increased as homeownership declined due to foreclosures. Lenders like apartments, and that means funds for updates are available.
“Money is much more flexible,” Wasserstein said.
When Rock On bought the Drake, the firm obtained $300,000 for capital improvements as part of its acquisition loan with an equity investment of 20% down. In 2008, he was in the middle of buying another property when the bank changed its terms to require 25% down and eliminated funds for improvements. He had to scurry to find $200,000 to fund needed repairs.
Another factor making it easier to undertake projects, Wasserstein said, is that more investors are interested in real estate. A 7% return for real estate looks good now, he said, in the present low-interest rate environment.
In JVM’s case, it paid for improvements on Dover Farms with a letter of credit from its Chicago-based lender who believes in its project, Madary said. When banks lend on such projects now, they are more focused on the borrower and the project than before the downturn, when more banks were in the market. Until recently, he said, “Banks weren’t doing much of anything.”
JVM plans to undertake similar improvement programs at its other properties here, Royal Oaks in North Royalton and Butternut Ridge in North Olmsted. Both Rock On and Ippolito are in the hunt for more deals.