Indianapolis—Developers looking at a map should cast their eyes above this city’s center, to the suburbs north and northwest of the city.

That’s where towns such as Fishers, Noblesville, and Carmel in affluent Hamilton County are seeing more cranes raised in the last year than ever before. Multifamily developers are staking their claims in these areas, where flat buildable land expands limitlessly in all directions.

Much of that construction north of town is poised to serve a new 725- acre mixed-use development called Saxony, which runs along the Interstate 69 corridor in parts of Fishers and Noblesville.

Saxony will feature more than 1 million square feet of retail space, more than 3.5 million square feet of office space, and nearly 1,300 mostly single-family housing units when it’s completed.

Local developer Herman & Kittle Properties, Inc., sees an opportunity in all of this activity. The firm, known more for its affordable housing projects, is developing its first purely market-rate project a stone’s throw away from Saxony in Noblesville. The 280-unit Autumn Breeze development will feature one-, two-, and three-bedroom apartments renting for between $785 and $1,225 a month. Lease-up is expected to start in late 2008, with the last units opening their doors in early 2009.

“Up until a couple of years ago it was a pretty quiet market for marketrate [units],” said Todd Sears, Herman & Kittle’s vice president of finance. “But now, that Interstate 69 corridor is a big development area. Those suburban counties have been doing well and seen steady development.” The company secured a $23 million construction loan from LaSalle Bank for the deal.

Another local developer, the J.C. Hart Co., is also taking advantage of growth in Hamilton County and has two multifamily properties in the works targeting the northern suburbs. The Saxony apartments, located in Fishers near the larger development of the same name, will feature 248 Class A units, and is due to break ground in early 2008. South of that, in the suburb of Carmel, the firm is in the early stages of planning The Legacy, a 254-unit multifamily complex.

“The north side of Indy, that Carmel-Fishers area, has seen a lot of construction lately,” said Mark Juleen, a vice president at J.C. Hart. “We see a lot of growth there.”

Downtown plans

But it’s not just the suburbs that offer attractive prospects for developers. Downtown, some new developments are banking on the city’s strong and diverse local economy.

A partnership between local developers Paramount Realty Group and Alboher Development Co., Inc., recently purchased a 2.3-acre lot downtown with plans for a mixeduse, 200-unit, 16-story tower. The Paramount Tower will target local student populations from Indiana University-Purdue University Indianapolis and Butler University.

A block west of the planned Paramount Tower, another locally based developer, Flaherty & Collins, is planning a luxury apartment complex. The Cosmopolitan on the Canal, a $36 million, 218-unit mixed-use complex will feature 20,000 square feet of retail space, and is scheduled for completion in 2009.

J.C. Hart also is putting the finishing touches on the Waverley, a mixed-use development downtown that has been in the works since 2006. The 164-unit Waverley features 11 three-story buildings and three adjacent commercial spaces of about 2,000 square feet each. The firm secured a $16.1 million construction loan from Huntington Capital for the project, and construction is due to be finished this summer. Rents, which include parking spaces, will range from $849 for the smallest one-bedroom unit to $1,729 for the largest two-bedroom townhomes.

The presence of several large local employers like Eli Lilly and Co. and Farm Bureau Insurance drew J.C. Hart to the site, Juleen said. What’s more, big employers like AT&T, Allegiant Global Services, and Allstate announced major expansions in the area in 2007. Employers added about 10,600 positions in 2007, and are forecast to add another 9,750 in 2008 and 15,550 in 2009, according to market research firm Reis, Inc.

Occupancies up

J.C. Hart, which manages about 2,200 units in the metro area, has seen concessions go down considerably in the last year, and occupancy across its portfolio has risen 6 percent, from 86 percent to 92 percent, from year-end 2006 to year-end 2007. Typical concessions in 2006 were about a month of free rent, which averages out to about $70 a month. “We’ve cut that figure down by more than half, to about $25 a month,” Juleen said.

The biggest change for apartments in 2007 was a huge jump in renewal rates driven by uncertainty in the single- family market. “We were turning over, in the past three years, almost 70 percent of our units,” said Juleen. “But I think we’re going to see a continued stabilization of renewals, that our occupancies will continue to go up, and that we should be able to grow the rent in 2008.”

Rents in the metro area grew about 3.2 percent in 2007 to $618, according to Reis. The firm forecasts that rents will grow 2.6 percent in 2008 to $634, then climb another 2.5 percent in 2009, and 2.9 percent in 2010.

While Indianapolis has a historically high vacancy rate, around 9 percent, that’s a misleading figure, many say. Much of the city’s housing stock is old, and the south side of town features many buildings that run at 80 percent to 90 percent occupancy. Juleen said he has several properties on the north and west sides of the city that are operating at occupancy rates from 94 percent to as high as 99 percent, but his properties on the south side have rates closer to the high 80s.

Investment activity picks up

Investors from both coasts have also been attracted to Indianapolis by its strong and diverse local economy, relatively inexpensive prices, and slow but steady increases in property values. Capitalization rates, which measure the ratio between an asset’s cash flow and cost, are averaging in the mid- to high-7 percent range, higher than most expanding metros throughout the country, reports brokerage firm Marcus & Millichap.

CB Richard Ellis’ Indianapolis office reported that about 75 percent of its recent multifamily sales in the area have been to investors from the East and West coasts, according to a report in The Indianapolis Star. Of the $215 million in sales through the end of October 2007, $161 million came from the coasts. That’s a huge jump in transaction volume when compared to the $95 million in total multifamily sales CB Richard Ellis handled in 2006.