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Multifamily investment firm sees best leasing results since pandemic-era spike
This piece is sponsored by Ernst Capital Group.
It’s shaping up to be an especially strong year for multifamily housing — and for the Sioux Falls firm that connects investors with opportunities across the region.
“Other than two outlier years during the pandemic, we’ve seen some of the best leasing activity in the last decade, so it’s been a very good year,” said Chris Daugaard, a partner in Ernst Capital Group.
“Overall, residents are focused on affordability, which has gotten harder and harder for a lot of developments to deliver. Our focus is on providing a lifestyle that’s affordable and adds value for residents. That’s a difficult needle to thread, but our performance this year shows we’re still delivering it, for both residents and our investors”
Entering the fourth quarter, several themes are emerging. Construction of new single-family homes and townhomes is down, while “at the same time, rental townhomes can barely be built quickly enough,” Daugaard said.
“In Sioux Falls and across the region, we’re being responsive to that knowing there are a number of people looking for a townhome lifestyle who aren’t able to or interested in trying to purchase something right now.”
Ernst Capital is investing in new townhome projects in Sioux Falls — both the east and northwest sides of town — as well as in Rapid City, Des Moines and Omaha.
“The appeal is that it’s a very high-quality, single-family type of lifestyle with your own front door and attached garage along with your own patio or deck,” Daugaard said.
“There’s generally more space than a traditional apartment, and it can be very reasonable compared to purchasing something.”
It’s not uncommon for tenants to save $1,000 per month compared with a mortgage on a comparable property — and that’s before accounting for the insurance, property taxes and maintenance and upkeep already bundled into the rent, he added.
“That’s all included in the rental price. On top of that, many of our projects include amenities like a large fitness center and pool, a community room for hosting events, a dog park in addition to individual yards for pets and a playground — so there’s a lot of value and convenience built in.”
The Yukon at Benson in northwest Sioux Falls is a good example of such a property. It reached stabilization this summer and combines traditional apartment floor plans with more than 90 townhome-style units.
“It’s 97 percent leased and meeting our rent targets,” Daugaard said. “We’re really happy with how it’s gone, and I think it shows our projects are successful at rents that are still affordable. We’re meeting affordability needs while the numbers still pencil out and deliver for investors and support financing from banks.”
Ernst Capital also recently stabilized and refinanced its Willowbrook Village property in northeast Sioux Falls, which offers 57 detached rental homes, creating the experience “of a true single-family home,” Daugaard said.
“It’s 100 percent leased. That sort of built-to-rent project is something we’d like to do more of once Congress clarifies some unforced errors in the most recent housing bill. We anticipate it getting fixed and then will explore additional opportunities.”
The development has “less turnover than a typical multifamily neighborhood and a diverse resident mix,” he added. “There are young professionals, young families and folks toward the end of their career or at retirement stage looking for something with less maintenance so they can use their home equity for other things.”
Both Yukon and Willowbrook finished construction with funds left over, and “with the Yukon, we even came in below initial budget and didn’t use a dime of contingency,” Daugaard said.
As new properties come into the market, leasing has remained steady, he added.
“We’ve had people ask if oversupply is a challenge, and we haven’t seen that — our occupancy reflects continued strong demand,” Daugaard said.
“When we build communities that are both affordable and high value for residents, that tends to work well for our investors too.”
To learn more about Ernst Capital’s projects and investment philosophy, visit ErnstCapitalGroup.com.
