The Richmond market placed No.13 in APARTMENT FINANCE TODAY’s Top 50 Apartment Markets last October. The exclusive analysis looked at data from a pool of 83 apartment markets across the country.

Richmond has what it takes to sneak into the top 10 apartment markets in 2008, according to a report from M/PF YieldStar, a Carrollton, Texas-based real estate research firm. With a modest number of units coming online and little competition from shadow market product, things are quietly looking good for Richmond.

“It’s not a market that captures people’s imaginations,” said Sam Chandan, chief economist with Reis, Inc., a New York City-based real estate research firm. “Maybe that’s been a good thing because Richmond’s not doing badly.”

Out of the 79 primary markets for which Reis has research data, the Richmond market ranks 49th in the number of new units that will be added to the market, meaning that there isn’t much new construction on the horizon. Only 93 new units were built through the first three quarters of 2007. Richmond’s South Atlantic peers completed a total of 4,763 new units during the same time period.

Employment outlook

A number of jobs are coming to the Richmond area. Rolls-Royce announced last November that it would build an aircraft-engine plant about 30 minutes south of Richmond in Prince George County. Officials have said it will open in 2009.

The planned $1.2 billion expansion of Army base Fort Lee is expected to bring thousands of information technology jobs to the area.

“We are going to see strong rental demand because of all this growth,” said Bruce Milam, a vice president with Grubb & Ellis / Harrison & Bates, a commercial real estate firm in Richmond.

The only spoiler for apartment investors here is that some economists project that the Richmond metro will lose some jobs in the near term. projects that household growth will slow to about 0.8 percent in 2009, down from a 1.8 percent pace in 2007. Wachovia Securities, for instance, announced plans to move operations from Richmond to St. Louis after its merger with A.G. Edwards, Inc.

Head of the class

Milam has seen a lot of demand from investors for Class C product. One notable development that recently changed hands was Tobacco Row Apartments. An affiliate of Cleveland-based developer Forest City Enterprises, Inc., purchased the 259-unit development for about $26 million.

“That’s about $100,000 per unit,” said Milam. “That product is C-minus at best. That was really surprising, and there’s no parking.”

The project is located downtown in Tobacco Row, a collection of 18th-century tobacco warehouses and cigarette factories adjacent to the James River. The area is also known as Shockoe Bottom. The apartment building, which was one of these former factories, has suffered from tenant retention issues, Milam said. It was converted into apartments in the late 1980s.

To put that per-unit price in perspective, the estimated cost of construction for a brand-new multifamily unit in downtown Richmond at the end of the third quarter of 2007 was $97,881, according to data from NPA Data Services, Inc., an Arlington, Va-based research firm.

“Some of these Class C products will likely be upgraded and their rents pushed up,” said Milam.

One notable transaction on the Class A side is Creek’s Edge at Stony Point, a 202-unit community situated on 26.2 acres about 10 miles from downtown. Holliday Fenoglio Fowler secured $22.75 million in financing for the project, placing a 10-year, fixed-rate loan with Quadrant Real Estate Advisors on behalf of AXA Equitable Life Insurance Co. The property was completed in 2006 and features a clubhouse and detached garages. It was about 90 percent leased at the time of the sale.

Richmond’s vacancy rate has been ticking down steadily. At the end of the third quarter of 2007, the vacancy rate was 6.6 percent. For the same period in 2005, the metro recorded a vacancy rate of 7 percent.

“This is a set of conditions under which we’re seeing pretty healthy asking and effective rents in the market,” said Chandan.

Richmond’s accessibility and affordability (and quiet gains) compared to many of its South Atlantic peers may be the keys to its success in 2008.