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Low Vacancy in Fayetteville Makes Even Older Properties Stay in High Demand

5 min read

The more beds that go into Fayetteville, the more beds Fayetteville seems to need, and that means even older multifamily properties are still in demand.

Arvest Bank’s Skyline Report detailed in September that northwest Arkansas’ vacancy rate in multifamily real estate continued to drop despite continual construction of new apartment complexes. In the first half of 2016, the overall vacancy rate was 2.4 percent, a drop from 3 percent in the first half of 2015.

In Fayetteville, home to thousands of apartment-living University of Arkansas students, the vacancy decrease was even more pronounced as it dropped from 3.6 percent in the first half of 2015 to 2.7 percent in the first half of this year. Related, of course, were the more than 3,800 new rental units scheduled or already under construction in Fayetteville.

The high-end construction projects have garnered much publicity during Fayetteville’s multifamily building boom. Complexes such as Gather on Dickson, the Cardinal and the Watermark at Steele Crossing boast hundreds of units with up-to-date amenities and perks.

Less publicized are the old complexes, perhaps state-of-the-art when they were built decades ago but now just run-of-the-mill apartments — sometimes with just a dozen or so units — that don’t stand out in the crowded market. They do, however, still attract renters and investors.

“Those little places, they always seem to be full,” said Lyndy Lindsey, president of Lindsey Management, the apartment management subsidiary of one of the state’s largest private companies, the Lindsey Co. “You drive around and you see a bunch of cars in the parking lot.”

Lindsey knows both ends of the market. Lindsey Management recently opened the Trails at Bentonville, a 486-unit complex with 1-gigabyte-per-second internet connection available, a resort-style swimming pool, fitness center and clubhouse, but Lindsey also owns the much less glamorous Chestnut Apartments in Fayetteville, built in 1981 at the start of the company’s life.

Investors Love Apartments

Tim Brisiel of Legacy Ventures loves old apartments. Brisiel recently bought two Fayetteville complexes for $5 million to add to his portfolio of rental properties.

The complexes, Colonial Arms on North Leverett Avenue and Oakwood Place on West Putnam Street, were built in the 1970s and have 69 and 74 units. Brisiel, a contractor and builder, has the expertise to know they were, despite their age, still in good condition and a sound investment.

Brisiel said it is still an anxious time to be in the apartment business because even though the market is hot, so many units are being built or planned that it generates worry about oversaturation.

“It doesn’t matter if it is a new complex, old complex, younger complex; bottom line is, it is scary,” Brisiel said. “Aside from that, the competitive advantage that we saw with the ones that we purchased was it’s a well-kept Class B, real nice Class C. I’d say it is a Class B property or will be when we finish our remodel. The biggest thing is that everything coming online right now is high-dollar, top-of-the-line, almost resort-style complexes. My thoughts are everybody doesn’t have the means to live in those complexes like that. We’re just trying to provide a good, affordable place to live in a nicely managed, well-kept complex.”

Brisiel said he plans to spruce up the two complexes with what he calls “heavy cosmetic improvements” such as new cabinets and light and plumbing fixtures as well as exterior improvements — “just trying to give it a little pizzazz and bring it to the current time,” Brisiel said.

One obstacle, however, is that the apartments are still full, so Brisiel has to fix them up piecemeal as the units become vacant. Brisiel would save money by replacing a dozen stoves or toilets at a time, but he would also lose the monthly income of a dozen rentals.

“You’re buying an income stream,” Brisiel said. “It’s basically an annuity. We’re trying to preserve. We’re trying to make updates when people move out and preserve the tenant base.”

The payoff is that Brisiel believes the upgrade expenses will be offset by rent increases that still keep the two complexes an affordable alternative to the fancier, newer complexes.

Bird in the Hand

Lindsey understands the balancing act. He said Lindsey Management tries to upgrade its older apartments as they become available, but vacancy rates are so low that it’s hard to make the call to take units offline and forgo the rent income.

“Even if the old ones are full, why go in and redo anything if you can turn around and re-rent the thing to somebody tomorrow?” Lindsey said. “Why take a month to redo it or however long it would take. If you run into vacancy and you have a bunch of units sitting there vacant, maybe that is the time to go in and update them. Eventually you have to redo stuff and keep it up. Our normal practice is we always repaint, re-carpet pretty continuously and redo the floors.”

Lindsey said the company is routinely contacted by investors who want to buy one of its older complexes. Lindsey said the company’s philosophy is generally to build and operate, although Lindsey Co. did sell the Vantage Point Apartments in 2013 for $1.5 million.

Just in the past year, Fayetteville complexes sold have ranged from the expensive (California investors paid $17.6 million for the Garden Park Apartments) to the inexpensive (Ted Belden paid $790,000 for the Nettleship Apartments). Brisiel said he too had been trying to buy the Nettleship, a 16-unit complex built in 1970.

“This is exactly the time when you would expect to see these kinds of purchases being made,” said Kathy Deck, the director of the Center for Business & Economic Research at the UA. “When you see vacancy rates this tight and occupancy is as strong as it is, it is very attractive to someone who is looking for cash flow out of their investment properties.”

Deck said older apartments are attractive because there is a market for lower rents and real estate is so expensive that only deep-pocketed investors can develop large-scale projects — which require higher rents to compensate.

“There is demand at a variety of price points,” Deck said. “When we look at vacancy rates like ours, it doesn’t just mean the new stuff. Previously built stuff is full, too. The fact that they are 30 years old is not a strike against them.”

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