February 20, 2018

Fueled by 'meds and eds,' Elm City's luxury apartment market takes off

Photo | Contributed
Photo | Contributed
The Novella, which sold for $36.9 million in September, is one of several high-end apartment buildings in the New Haven area that sold for well above their assessed values.

Since last fall, at least two upscale apartment buildings in downtown New Haven have sold for significantly more than their assessed fair market, in one case more than twice what the city said it was worth just a year before.

In September, the 136-unit Novella at the corner of Chapel and Howe streets sold for $39.6 million, higher than the city's value for the property.

A month later, a Singapore-based company closed on 200 College St., a five-story, 160-apartment mixed-use building, paying an eye-popping $70 million. That was more than twice the assessor's estimated sale price.

The trend appears to have jumped the city limits. In January, a 99-unit luxury townhouse complex in Shelton went for $33 million, a big increase over the city's estimated value.

Add to that the growing number of higher-end market-rate apartments in New Haven, with many more in the pipeline, and the question has to arise: Is the Elm City in the midst of a high-end apartment boom?

The short answer, say developers and city officials, is yes. Growth at Yale University and Yale New Haven Hospital, an uptick in well-paying jobs and the desire for an urban lifestyle among members of the millennial generation have all combined to spark a roaring market for high-end accommodations, they say.

"We're really pleased at the way things have been going," said Steve Fontana, the city's deputy economic development director. "We're always looking for new, and interesting, innovative and unique kinds of investment."

Andy Montelli, president of Post Road Residential, which developed the high-end Corsair apartments on State Street, said that New Haven is a beneficiary of a phenomenon developers call "meds and eds." Like Boston and San Francisco, the city has the killer combination of a first-class research university and a research medical institution, creating a jobs and prosperity machine, he said.

Another key factor priming the city's pump was its unusually low apartment vacancy rate, Montelli and other developers said. Eventually, developers took notice and took a chance – redevelopment of the Strouse Adler complex near Wooster Square into apartments being one of the first examples, they said. When the initial ventures succeeded, that combined with expansion at Yale and the hospital caught the attention of institutional investors and the market took flight, Montelli said.

"The focus and the attention resulted in a kind of dam burst of apartment activity," he said.

That dam burst of activity resulted in about 1,000 to 1,500 new market rate apartments in the city, with another 1,500 to 2,000 on the drawing board, Fontana said. Interest is keen enough that he predicted projects would begin spilling out of downtown and into the city's neighborhoods. Meanwhile, investors from overseas are making inquiries, he said.

"We're a great small city and a great place to invest your money," Fontana said. "I would say at this point we have some really nice drivers and a synergistic mix. That's always our goal, to not double or triple down on a particular source of investment or one particular type of development."

Fontana downplayed any concerns that the boom could reach the point where longtime and especially poorer residents would be pushed out of their homes and neighborhoods. The city works to forestall that by collaborating closely with the community on development issues, he said.

Paul Dentz, founder and developer of Northside Development Co. and a 25-year veteran of the city's real estate market, said that who buys and builds in New Haven has changed. The city's low vacancy rate, improving economy and growth at Yale and the hospital are attracting big time players from outside the area and overseas. They are willing to accept lower rates of return on investment, further fueling the growth and high sales prices, he said.

In spite of being in the planning stages for a new 137-unit apartment building next to his high rise at Church and Elm streets, Dentz expressed concerns about market saturation down the line.

"I think what's going to happen if all the products that were on the books were built, at some point, there's going to be too much, and then there's going to be a problem," he said.

In the meantime, however, the market remains hot. Asked if he ever gets offers to buy his fully rented-out Corsair property, Montelli immediately replied, "All the time."

Christopher Hoffman can be reached at news@newhavenbiz.com

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