Albuquerque, N.M.—Rich Diller has reason to feel pretty good about his latest development—the Bricklight Courtyards. All but a half-dozen of the 46 new apartments have been rented without a fullscale marketing effort, and nearly all of the 7,200 square feet of retail space has been leased.
“We're ahead of schedule,” Diller said in early September, about two months after the stylish development welcomed its first residents.
The early success gives Diller and his partners plenty to think about as they weigh the possibility of continuing their redevelopment efforts down the block.
Like a lot of cities, Albuquerque is focusing its attention on infill development, and Bricklight is a prime example of this trend. Located about a block away from the University of New Mexico (UNM), Bricklight Courtyards is in a neighborhood that has seen little development activity in recent years. “We're the pioneers,” said Diller, who knows the neighborhood; he played football for UNM in the 1970s. “I think it is going to spur additional redevelopment,” he said.
The project, which is controlled by local group Harvard Mall Partners, LLC, replaces several single-family homes that had been converted to shops and other uses over the years.
The proximity to the university is a huge asset. Several of the studio apartments have been rented to students, and a professor has become a resident as well. The university's 24,000 students also generate important pedestrian traffic for the complex's retailers.
Building a stone's throw away from a major urban campus, however, has its barriers, including getting the necessary zoning approvals and community support. As a result, Bricklight carried its share of uncertainty.
“It was definitely a risk as there was no assurance that we could get the neighborhood support and zone change approvals necessary to move ahead with the current phase,” Diller said. “If we would have been limited to the income potential of the existing structures, the upside of the project overall would have been greatly diminished.”
The developers wanted to increase the density on the site, and they knew that one of the keys in developing the project would be to work with the community, especially the neighborhood associations.
That's one of the lessons that other developers can learn from Bricklight, according to Diller. “If you are going to go in and put your stamp on a neighborhood without support from the neighborhood, it is going to be an uphill battle,” he said.
The neighborhood wanted to make sure that small, local businesses were included in the development. As a result, a number of local businesses are part of the mixed-use project, including a sandwich shop, a couple of boutique stores, and a hair salon that is relocating from a smaller space down the street.
Parking is also often a huge obstacle for infill developments. As such, the Bricklight team had an adjacent parking lot in its plans, so it was able to address that issue.
In the end, four buildings standing two and three stories were built. The development is tiered like a wedding cake. “It has a real urban living feel to it,” Diller said.
Construction financing was provided by First Community Bank, a local lending institution. With the property getting close to being stabilized, the team was in the process of securing permanent financing.
Overall, the Albuquerque apartment market remains fairly tight, with rents starting to rise, said Diller, president of NAI The Vaughan Co., a commercial real estate firm.
Apartments at Bricklight range in size from about 600 to 1,200 square feet, with monthly rents ranging from $700 to $1,900, putting the complex at the upper end of the scale for the Albuquerque market.
David Eagle, senior vice president and head of the New Mexico Multi- Housing Group for CB Richard Ellis in Albuquerque, recently conducted an apartment market survey that found the overall occupancy rate to be about 94 percent at the end of the first quarter. The average monthly rent for a two-bed, one-bath apartment was $672. Eagle predicts rent growth on average to be about 2.5 percent to 3 percent this year.
“Albuquerque has always been a stable market,” Eagle said. “It's substantially built out.” With land constraints limiting new construction, the trend will be toward more acquisition- and-rehab deals, according to Eagle, who points out a handful of new properties under construction, including ABQ Uptown, an upscale residential and retail project by Hunt Development Group.
First Advantage SafeRent also reported that the Albuquerque metropolitan statistical area has experienced a 1-point drop from 103 to 102 in renter credit quality in the second quarter compared to the same period in 2007. The national average value was 105, under the firm's Multifamily Applicant Risk Index (MAR), which is derived from its statistical screening model.
“The Albuquerque market saw a slight decline in the proportion of applicants rejected, suggesting that landlords are adjusting their acceptance criteria gradually and systematically to balance risk and occupancy goals,” said Jay Harris, vice president for First Advantage SafeRent.
The MAR Index provides trends of national and regional traffic credit quality scores, whereby a lower index value indicates an applicant pool with a higher risk of not fulfilling lease obligations. A MAR Index value of 100 indicates that market conditions are equal to the national mean for the index's base period of 2004. A value greater than 100 indicates market conditions with reduced average risk of default relative to the index's base-period mean.