Insights from the Simonson Appraisals Team
Panel 1: Development in Minnesota
The Itasca Project aims to add 18,000 new units annually to offset the slowdown from the Great Recession. In both 2024 and 2025, approximately 12,000 units are projected—about two-thirds of the target. Population growth in the Twin Cities has rebounded, with the region now ranked 12th nationally for net multifamily absorption.
A key theme was the rising cost of homeownership, which now carries a 30–40% premium over renting. Still, the rent-to-income ratio remains favorable—5th best among major U.S. markets.
Rent Control
St. Paul’s rent control policy is struggling to meet its intended goals. Rents have risen faster than in Minneapolis, where more housing supply has kept prices in check. Developers remain wary of St. Paul’s restrictions, while Minneapolis continues to attract new construction.
Chris Sherman noted that repealing rent control could boost assessed values, lower cap rates, and attract new investors—while preserving 4d affordable housing stock could maintain affordability safeguards.
Getting More Housing Built
The proposed Catalyzing Underutilized Buildings (CUB) tax credit aims to promote conversion of vacant buildings—such as schools and offices—by covering 30% of qualifying project costs. With private financing down 95%, most developments now rely on federal tax credits and public-private partnerships. Panelists emphasized streamlining tax-increment financing (TIF), expanding 4d options, and adopting more “by-right development” policies to accelerate progress.
Deals Slowing Down
Rising insurance costs and availability are now major hurdles in getting deals done—sometimes becoming deal-breakers. Premiums and deductibles are rising, security costs are up, and remodeling costs remain high.
Market vs. Affordable Housing Costs
Affordable housing takes longer and costs significantly more—often 40–50% higher than market-rate housing, with timelines stretching up to six years. Panelists questioned whether increasing overall housing supply—rather than strictly affordable units—might offer better affordability outcomes. Minnesota’s higher building standards do raise upfront costs but ensure longer-lasting housing stock.
Panel 2: Virtual Leasing and Tenant Experience
Virtual Leasing Platforms & Websites
Modern leasing platforms allow prospective tenants to browse virtual tours, photos, amenities, and rental details online—reducing staffing needs and improving efficiency. A streamlined, user-friendly website is now the most powerful marketing tool for property owners, acting as the final destination for leads from listing platforms.
Balancing the Tenant Funnel
Maintaining a balanced pipeline of prospective tenants—rather than focusing only on closing—can reduce marketing costs and improve occupancy. Higher Google ratings also play a key role in lead generation.
Rent Collection Trends
Rent payments are increasingly digital. Platforms like RentCafe allow for virtual check uploads, while services like Flex enable tenants to split rent payments—boosting retention, particularly in Class C properties. Some properties also deduct rent directly from employee paychecks.
Blending Automation with Human Touch
AI-driven audits are replacing clunky Excel processes, improving speed and accuracy. Still, property managers are advised to maintain in-house emergency services to improve tenant satisfaction and responsiveness.
Panel 3: Buyer Sentiment and Market Conditions
Shifting Buyer Outlook
Interest rate hikes and prior market losses are prompting some investors to sit on cash. Properties under $5 million remain relatively liquid, while mid-size properties ($5–$20 million) are seeing fewer deals. Many investors are adjusting to longer hold periods—5 to 15 years—and shifting from rapid renovations to gradual improvements under long-term debt.
Value-Add and Distressed Properties
Buyers prefer post-1990s buildings, as older assets often come with costly repair needs. With renovation costs rising to $15,000–$20,000 per unit, many investors are opting to rent units “as-is.” Cash flow is king—buyers now want at least 40% of returns from ongoing income, rather than relying on appreciation. In most cases, distressed and value-add deals are too risky, though niche opportunities exist in select markets like Champlin and Crystal.
Additional Notes
Insurance remains a sticking point in most transactions, with a cautious market outlook. However, investor interest in townhomes remains strong, with competitive bidding on nearly every offering.
Panel 4: Cost Reduction Strategies for Multi-Family Housing
Design and Construction Innovation
To reduce costs, developers are shifting to space-efficient layouts like pod-style and courtyard designs. Smaller footprints with larger windows make units feel more spacious. Simplifying floorplans and minimizing common hallways helps lower build-out expenses.
Even modest studio apartments, while technically meeting AMI-based affordability thresholds at $1,300/month, often reach $1,500/month after adding utilities, internet, and parking—challenging the definition of affordability.
Policy and Planning Tools
Allowing cities more TIF flexibility—without strict blight tests—could accelerate project timelines. Adaptive reuse remains an option, but panelists advised using it as a last resort due to complexity and cost.
Building Code Reform and Amenities
Revisiting outdated codes, such as the costly requirement for rooftop window-washing davits, could save tens of thousands. Modular construction remains limited by transportation challenges and upfront financing burdens. As for amenities, fewer (but better maintained) offerings are preferred—tenants penalize owners more for broken promises than for a simpler offering that works well.
Simonson Appraisals remains committed to staying at the forefront of multifamily market trends. Reach out to our team for appraisal valuation services tailored to the evolving needs of investors, developers, and property owners across Minnesota and North Dakota.