Apartments on the rise in Chattanooga

Apartments on the rise in Chattanooga

March 10th, 2013 by Shelly Bradbury in Business Around the Region

Work continues on the Walnut Commons building at the corner of Walnut Street and Aquarium Way.

Photo by Angela Lewis /Times Free Press.

Illustration by Laura McNutt /Times Free Press.


The 300: 112 units at Pine and Sixth streets downtown. Renovation 90 percent complete, residents starting to move in.

Walnut Commons: 100 units at Walnut Street and Aquarium Way. $11 million. Scheduled to open late 2013.

Madison Street Apartments: 102 units at East Main and Madison streets. Scheduled to open Spring 2014.

The Constance: 27 units at 125 Cherokee Blvd. $5 million. Construction complete in late June.

Walk2Campus facilities: 90 units in Francis Willard building on Lindsay Street and the former women's hospital on McCallie Avenue. $4 million. Construction was set to start in January.

Calypso: 378 units in 7000 block of Standifer Gap Road. $25 million. Two-stage construction to start in 2014.

The Hamilton Lofts: 42 units at 600 N. Market St. $4 million. Scheduled to open late June

The Landing at Ashwood: 262 units at 2000 block of Murray Lane and 7000 block of Shallowford Road. $26 million. First units scheduled to open in 2014.

McCutcheon Road Apartments: 250 units at 6839 MCutcheon Road. $20+ million. Construction starts in April, opening set for early 2014.

Chestnut Street Apartments: 48 units at 1810 Chestnut St. Tentatively scheduled sometime after The Jump Park is completed in June

Two out-of-town developers are planning major apartment complexes in East Brainerd that will add more than 500 units to Chattanooga's rental market.

The complexes are part of a host of new apartment buildings scheduled to open in the next year as developers aim to capitalize on the city's booming apartment market.

The 250-unit and 262-unit complexes are planned within two miles of each other, and both will go before city planners on Monday for initial approval.

New York City-based Rohdie Group is planning the smaller complex at 6839 McCutcheon Road. The proposed 16.5-acre complex will include one, two and three bedroom apartments in 10 buildings that will circle a retention pond.

The other complex, called "The Landing at Ashwood," is being built at 7608 Shallowford Road by TDK Construction which is based in Murfreesboro. Its units will start at 750 square feet and also include one, two and three bedroom options. Both complexes will include fitness centers, salt-water swimming pools and clubhouses.

Strong job growth, high occupancy rates and pent-up demand are driving developers to Chattanooga, said Woody McLaughlin, an apartment investor who served on the board of the Tennessee Apartment Association for 20 years.

"As far as apartments go, Chattanooga has had probably the best rent growth and best occupancy of any of the apartment markets in Tennessee, and is one of the best in the Southeast," he said. "And job growth has a lot to do with apartment demand."

Bob Rohdie, president of Rohdie Group, said the city's job growth is one of the key reasons he wants to build in Chattanooga.

"The employment seems to be not only stable, but robust," he said. "I think the introduction of Volkswagen and Amazon attracts people who want to live in Chattanooga. And we want to build the housing for them."

About 2,500 new jobs were created when Volkswagen's manufacturing plant opened in 2011, and another 1,700 people found work at the Amazon distribution Center. But the impact of those jobs can stretch well beyond the number, Ross Bradley, vice president of development at TDK Construction, said.

"You hear about the 2,000 jobs added at Volkswagen, but you don't always hear about all the support jobs that go along with it," he said. "So the net effect is, say, an additional 8,000 people coming into the community."

Another part of Chattanooga's appeal is high occupancy rates, Bradley said.

"As an outsider looking at the market, we're seeing occupancies on projects at 96, 95 percent," he said. "So we're seeing that these apartments are in high demand."

Occupancy rates are up across the state, McLaughlin said. Nearly all major cities have occupancy rates at least 93 percent, and Nashville is at about 95 percent, he said.

"Nashville has about 10,000 apartments under construction or in the pipeline," he said. "So while Chattanooga has leaped into that category, it's not just Chattanooga."

Andy Dyer, a managing partner at the Virginia-based investment group that is building a 102-unit complex on East Main Street, said the company considered building in Georgia, Virginia and the Carolinas, but settled on Chattanooga in part because people seem committed to the city.

"The city's enjoying a buzz," he said. "You can't really quantify it, but it's clear that it's happening. We think this is the right product, in the right place, at the right time. "

With at least 1,000 new units planned in the city during the next 12 months, there is some danger that the surge of new apartments will exceed supply and drive occupancy rates down, developers agreed.

"For me, as an investor, it seems a little bit scary when everyone says the same thing, because it will eventually make the situation overheated," said Ilya Dyskin, who plans to build a 378-unit complex across from the Silverdale Detention Facilities next year.

"It's always a concern," Dyer said. "Real estate is not a perfectly efficient market. And the lead time is always so long you can never precisely project what is going to happen in the market."

But, he added, downtown apartments appeal to a different type of renter than apartments in East Brainerd, and the target market for each project is different.

McLaughlin said that even if developers overbuild, the market should rebalance fairly quickly.

"I think often attention attracts more attention," he said. "And if the lending markets are financing new construction, developers have a tendency to go too far. So it could be that two or three years from now there is some overbuilding. But as long as you have the job growth, it may just last for a year or so before the market catches up to it."

At the corner of Pine and Sixth streets, residents are just starting to move into The 300 -- 112 apartments built in the former St. Barnabas facility -- and so far, demand has been high, said Bob McKenzie, who was part of the development group.

"We're filling up apartments pretty much as quickly as we can get them renovated," he said. "It's been primarily young professionals."

He said he thinks the demand for apartments will continue to meet supply, even as the new units open up.

"It remains to be seen whether we will hit the wall or not," he said, "but at this point there is an awful lot of enthusiasm for living downtown."