Portland, Maine—Princeton Properties Management, Inc., has hardly raised the rent at its apartment properties here since 2001. Annual rent growth has ranged between 0 percent and 2 percent.

Apartment owners throughout the Portland area have suffered the same problem, even though the cost of operating apartments grew by a quarter over the same period, according to a report by the Northern New England Housing Investment Fund (NNEHIF).

But that didn’t stop Princeton from buying Foreside Estates, an apartment community in Falmouth, just outside Portland, last August.

Sometimes good opportunities lie outside hot markets like Boston, which has been thoroughly picked over by institutional apartment investors and condominium converters. In contrast, Portland’s quieter apartment market offered Princeton an opportunity to add value to an undervalued property.

Even better, there’s reason to believe that rents will soon rise throughout the Portland market.

Princeton is a Lowell, Mass.-based developer and manager of apartment properties, with a portfolio of 5,000 units in three states. Foreside is Princeton’s fifth apartment community in the Portland area. The company paid $16.5 million for Foreside, or about $97,000 per unit, putting the price far below the development cost for a new apartment property, according to Princeton.

The deal made perfect sense to the company, since it was already invested in properties in Portland and had managers in the area.

Those managers could immediately see that the rents at the 170-unit property had slipped below what renters were willing to pay. Princeton has already increased the rents at Foreside by between $50 and $75 per unit since 2006. Monthly rents now start at $900 for a one-bedroom apartment and rise to $1,350 for a townhouse.

That’s slightly higher than the average rent in Portland of $857 a month for a one-bedroom apartment. The average two-bedroom apartment rents for $991, according to NNEHIF.

Because Foreside was well maintained, Princeton didn’t have to make any expensive renovations. Even better, only 5 percent of the apartments at Foreside were vacant, well below the city’s average of 7 percent, according to NNEHIF.

A solid market

Usually apartment experts worry when vacancy rates rise above 5 percent and rent growth is slow to non-existent.

Competition from single-family homes and a hiring slowdown at area employers like L.L.Bean and National Semiconductor have pushed vacancy rates at Princeton’s apartment communities up from their low of less than 3 percent in 2001.

Still, there are a lot of reasons to like the Portland market. To begin with, the area’s population has been growing steadily from 300,000 in 1990 and is expected to reach more than 350,000 by 2011. Meantime, developers have built almost no new apartments here, even though Portland has land available to develop. Over the last 10 years, developers opened just 453 new rental apartments in the Portland area, or an average of only about 45 new apartments a year, according to NNEHIF. That’s a minute increase to the area’s inventory of 23,704 apartments.

Part of the reason is local resistance. “Neighborhood groups are really vigorous in opposing development,” said Jamie Whalen, regional property manager for Princeton.

More importantly, apartment rents in Providence aren’t high enough to support the high cost of construction. “Everything that’s being built is being built a condominium or as affordable housing,” Whalen said.

Walker Terrace is one of the few multifamily buildings that opened in 2006. Of its 40 apartments, 22 will be reserved for low-income households in exchange for an allocation of federal low-income housing tax credits from the Maine State Housing Authority. The remaining 18 apartments will rent at unrestricted market rates.

The simple math of population growth plus the addition of very few new apartments should equal declining vacancies and rising rents. That hasn’t happened so far because easy mortgage terms have lured many renters into single-family homes.

Demand for single-family homes has been so high in Portland that the median price has jumped from $112,300 in 2001 to $236,950 in 2006, Whalen said. Now, though, as easy mortgage terms disappear, some of that demand should return to the rental market.

And with construction costs still on the rise, that leaves recent purchasers of apartment properties, such as Princeton Properties Management, sitting pretty.