Housing Assessment 4 th Quarter 2017 Downtown Davenport, Iowa

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1 Housing Assessment 4 th Quarter 2017 Downtown Davenport, Iowa Prepared For: Downtown Davenport Partnership 331 W. 3 rd Street Davenport, IA DiSalvo Development Advisors, LLC

2 Quad Cities Regional Apartment Market Background The Quad Cities regional apartment market is strong with high overall occupancy levels among market-rate, affordable and rental-assisted properties. - Survey of 114 apartment properties totaling 11,547 units - Survey represents 70% of all apartment buildings of four or more units Market Characteristics by Occupancy Level 98.0% and Higher: Tight market; inflated rental rates and land prices; many owners less likely to invest in maintenance and upgrades; and lack of available housing alternatives dissuades higher share of renters from moving to area. 95.0% to 97.9%: Most balanced occupancy for developers and renters; moderate level of competitiveness; healthy occupancy level allows sufficient mobility to retain and attract residents; less deferred maintenance and more attention to tenant preferences; and rent concessions are limited. 93.0% to 94.9%: Occupancy still meets most underwriting thresholds for financial institutions and investors; highly competitive environment; some of the least competitive properties reduce rental rates to be in line with market expectations; and presence of some rent concessions. Below 93.0%: Lower occupancy reflecting soft market conditions; less interest in new investment by financial institutions and/or developers; rent concessions more common; property values at a low; and Tax Credit rents at 60% AMI may need adjusting to remain a value in the market. Page 1

3 Downtown Davenport Occupancy Levels Downtown apartment occupancy: 96.7%, slightly down, but remains strong -1.2 percentage points from 1 st Quarter 2016 (97.9%) -1.1 percentage points from 2012 survey (97.8%) Market-Rate Survey Participants Brady - Dorothea Apartments - Perry Hill Apartments - Andresen Flats - Forrest Block - Peterson Paper Lofts - Berg Apartments - Halligan Coffee Company Lofts - Putnam - Christie Park - Hotel Blackhawk - Renwick - City View Apartments - Lafayette Square - Schricker Flats - Crescent Lofts - Market Lofts - Union Arcade - Davenport Hotel - Mississippi Lofts - Wells Fargo - Democrat Lofts - Parker 60% of the Downtown properties are 100.0% occupied - 23 properties surveyed in Downtown totaling 752 market-rate units - 14 properties 100.0% occupied - Two sub-90 percentile properties, older Class C properties, one of which is outside SSMID Downtown Tax Credit properties are 96.8% occupied, but buoyed by Section 8 tenants - Increase of 3.4 percentage points since Occupancy increase is a result of the addition of HUD Section 8 Housing Choice Voucher recipients Page 2

4 Downtown Davenport Projected Housing Demand The region s renter household growth rate is projected to slow over the next five years; however, the City of Davenport is expected to continue to get the lion s share. - Over the next five years, ESRI, Incorporated projects annual household growth of 140 renters - Future projections take into consideration that pent up demand has been largely accommodated City of Davenport Renter Household Growth: : 202/year : 140/year Projected demand through 2022 shows a remaining housing deficit of 290 units. Projected Market-Rate Demand through 2022 DDA s Projected Demand Cumulative Years Annual Average Total Market-Rate Development* Unmet Demand units built, open and occupied 76 units 5 th Street Lofts Democrat Lofts Executive Square Halligan Coffee Lofts Market Lofts Peterson Paper Lofts Renwick Building Union Arcade Wells Fargo units built; 195 units under construction 42 units 501 Brady Apartments City Square Lafayette Square Hibernia Hall Gordon-Van Tine/Harborview Lofts Pershing Hills Lofts units planned 290 units Kahl Building Bucktown Lofts Total Units units built, under construction/planned 290 units *Does not include Tax Credit units at or below 60% AMI Optimal Development and Build-Out Considerations - The ability to build out to full demand potential will require a variety of rental housing stock, which may include townhome-style units. - The continued development of the same product could result in higher vacancies despite the presence of unmet demand. Page 3

5 Downtown Davenport Projected Housing Demand Demand is limited for additional Low-Income Tax Credit units within the downtown without additional rental assistance. - Slow lease up rates with managers claiming it is more and more difficult to find income-qualified persons, specifically those with incomes up to 60% AMI. - Declining income-qualified base; especially those whose incomes are near 60% of Area Median Income (see highlighted core income band of $25,000 to $34,999). Households By Income ( ) Household Income Change Less than $15,000 4,523 4, $15,000 - $24,999 2,683 2, $25,000 - $34,999 2,499 2, $35,000 - $49,999 2,658 2, $50,000 - $74,999 2,428 2, $75,000 - $99, , $100,000 - $149, $150,000 or more Total 16,357 17, Source: Esri, Incorporated - The high occupancy level among Tax Credit properties is attributed to the city providing many of their tenants with rental assistance, via the Housing Choice Voucher program. None of these voucher recipients have incomes above 50% of area median income. In fact, it is common nationwide for many of these households to have incomes below $15,000. The area could support up to 39 Tax Credit units with project-based housing choice vouchers. - Based on DDA s assessment of Iowa Finance Authority s newest scoring system; and - City of Davenport capacity for providing additional Housing Choice Vouchers (49 as of November 2017) - More than 1,500 of the apartment units surveyed were deemed affordable with rent levels below Tax Credit rents. This is a substantial base of affordable market-rate units. However, the quality of most of this low-priced housing is poor. The priority for Tax Credit development within the downtown should be for acquisition and rehabilitation of existing poor quality market-rate housing. The majority of this type of housing in the downtown area is west of Ripley Street. Page 4

6 DOWNTOWN HOUSING POTENTIAL Relative to the commercial environment and target market The commercial environment is an important factor in providing a unique lifestyle and attracting persons to live downtown. As the matrix below shows, the number and type of households that would consider living downtown increases when there is a more developed commercial environment. How does your downtown rate? Lifestyle Rating* Commercial Characteristics Target Market Description of Target Market Achievable Rental Housing Rate Poor Few retail and food & beverage establishments; high vacancies; limited community services Urban Pioneer/ Artist Smallest target group; appreciates historic urban environ and attractive architecture; likes raw/ original space Often large units and above average unit rent, but rent per square foot is well below market average (some ownership) - $ Limited Limited retail and food & beverage; high vacancies; community services and public transit available Low-Income Singles Most transient group; affordability of housing is the primary concern; often reside in subsidized/public housing; proximity to support services and public transit is important Below market - $ Fair Moderate level of restaurants and bars; modest vacancies in commercial ground floors; limited retail Students/ Service-Oriented Employees Affordability important; roommate situation common; willing to overlook quality and size of apartment to be a downtown resident Average - $$ Healthy Variety of restaurants and bars; coffee shops; galleries; dry cleaners; fitness center; low vacancy rate Young Professionals/ Entrepreneurs Singles and married couples; owners and employees of local businesses; other creative class workers (architects, web designers, etc.); In county seats, a high share of young professionals are attorneys and government workers Above Average - $$$ Vibrant Variety of restaurants/ bars; coffee shops; bakery; convenience retail; fitness; performing arts; boutique shops; few vacancies Empty Nester/ Homeowners Represent small share of market; need high-end finishings/services and vibrant lifestyle Top End of Market - $$$$ *Ratings based on vacancy status and variety of retail/restaurant, entertainment, and other goods and services. DiSalvo Development Advisors, LLC

7 Downtown Davenport For-Sale Housing Downtown Davenport has established characteristics that support for-sale housing. - High achieved market rents for multiple years - Strong demand by higher-income households who want to live downtown - Continued commercial additions, such as restaurants, music venues and an arcade bar all complement a vibrant urban lifestyle DDA projects demand for 110 to 140 for-sale housing units in Downtown Davenport over the next five years (through 2022). - Owner-occupied housing in buildings of more than five units in the nearby downtown areas of Des Moines, Cedar Rapids, and Peoria represent 10% to 15% of their renter-occupied housing stock. Applying these ratios to the approximately 1,200 occupied rentals in Downtown or zip code area yields 120 to 180 total owner-occupied units (note: there are currently 10 owner-occupied units in the downtown). B25032: TENURE BY UNITS IN STRUCTURE - Universe: Occupied housing units American Community Survey 5-Year Estimates Des Moines Cedar Rapids Peoria, IL Estimate MOE Estimate MOE Estimate MOE Owner-occupied housing units: 5 to / /-9 0 +/ to / / / to / / / or more 200 +/ / /-27 Total Owner-Occupied Units Renter-occupied housing units: 5 to / / / to / / / to / / / or more 1,351 +/ / /-64 Total Occupied Rentals 2, Owner : Renter Ratio 10.2% 13.7% 15.2% MOE: Margin of Error Page 5

8 Downtown Davenport For-Sale Housing - There will be an estimated 9,320 one- and two-person homeowners with incomes above $50,000 in the City of Davenport by The projected 110 to 140 units represent an ownership opportunity for less than 1.5% of these higher-income homeowners. Total Homeowner Households by Income and Size (2022 est.) Owner Households 1-PPH 2-PPH 3-PPH 4-PPH 5+PPH Total Less than $15,000 1, ,073 $15,000 - $24,999 1, ,986 $25,000 - $34, ,236 $35,000 - $49,999 1,005 1, ,307 $50,000 - $74,999 1,260 2, ,215 $75,000 - $99, , ,372 $100,000 - $149, ,004 1, ,755 $150,000 or more 146 1, ,726 Total 6,595 10,068 4,164 3,343 2,499 26,670 Source: ESRI, Incorporated, HUD s Special Tabulations of Households and DDA PPH Person Per Household - Renters converting to homeownership represent another source of support for downtown for-sale housing. There are nearly 3,000 one- and two-person renters in the City of Davenport with incomes above $50,000. If one-quarter of these households become first-time homebuyers (national average in 30 percentile), there are 750 first-time homebuyers looking for homeownership opportunities. (Note: ESRI has already projected the conversion in the 2022 owner household total). - ESRI provides Tapestry Segmentation data which combines demographics with shopping and recreational behavior. Three groups were identified within the City of Davenport with incomes qualifying ownership, typically without children and with the inclination to own multiunit and/or townhomes (versus single family). Excluding the share of households within these groups that would choose to rent over own, there are a total of 2,744 households within the downtown homeownership target market. The 110 to 140 units would represent a homeownership opportunity for 4.0% to 5.1% of this target group. DDA considers these achievable capture rates. Tapestry Group Name Bright Young Professionals In Style Enterprising Professionals Source: ESRI, Incorporated Primary Median Share of Homeownership Total Homeowner Household Type Income Households Rate Households Couples $50, % 44.1% 860 Married; no children Married couples; 30% single-person $66, % 68.8% 1,574 $77, % 52.3% 310 Total Target Households 2,744 Page 6

9 Downtown Davenport Unit Type Comparisons Vacancies are concentrated among two-bedroom/1 bath units - High Three-bedroom vacancy rate represents only a few vacancies Vacancy Rate Vacancy Rate By Bedroom Type and Area 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Studio/Efficien cy One-Bedroom Two- Bedroom/1-1.5 Bath Two- Bedroom/2 Bath Three- Bedroom Downtown Davenport 2.0% 3.7% 7.3% 0.0% 12.5% City of Davenport 1.8% 3.7% 3.3% 1.9% 2.8% Quad Cities 2.5% 2.8% 3.2% 2.1% 3.8% Downtown offers a much higher share of one- and two-bedroom/2 bath units Unit Distribution by Area Studio/Efficiency & One-Bd Two-Bd/2 Bath Two-Bd/1 Bath Three-Bedroom Two-Bd/1.5 Bath 0.0% 5.0% 10.0%15.0%20.0%25.0%30.0%35.0%40.0%45.0%50.0%55.0%60.0%65.0%70.0% Two-Bd/1.5 Bath Three-Bedroom Two-Bd/1 Bath Two-Bd/2 Bath Studio/Efficiency & One-Bd Quad Cities 8.1% 7.4% 21.4% 13.9% 49.4% City of Davenport 9.8% 9.1% 20.3% 11.9% 49.0% Downtown Davenport 0.4% 2.1% 13.0% 21.9% 62.8% - The downtown s lower share of two-bedroom/1 bath units and high vacancy rate indicates rental rates among these unit types may be too high Page 7

10 Downtown Davenport Median Rent Comparisons One- and two-bedroom/2 Bath Downtown median rents are 123% of the region - It is not uncommon for vibrant downtowns and other mixed-use environments to achieve rents 125% of prevailing rates. - The Downtown s median twobedroom/1 bath is 136.0% of the regional rent for the same unit type. - While there are few threebedroom units in the downtown, the rents of these unit types are well in excess of regional rents. Downtown Median Rent as a Unit Type Percent of Regional Net Rent Studio/Efficiency 95.0% One-Bedroom 123.6% Two-Bedroom/1 Bath 136.0% Two-Bedroom/1.5 Baths 101.0% Two-Bedroom/2 Baths 123.1% Three-Bedroom/1 Bath 141.8% Three-Bedroom/1.5 Baths 98.2% Three-Bedroom/2 Baths 214.7% Median Net Rent Median Net Rents By Bedroom Type and Area $2,100 $2,000 $1,900 $1,800 $1,700 $1,600 $1,500 $1,400 $1,300 $1,200 $1,100 $1,000 $900 $800 $700 $600 $500 $400 Studio/ Efficiency One- Bedroom Two- Bedroom/ 1 Bath Two- Bedroom/ 1.5 Bath Twobedroom/ 2 Bath Threebedroom/ 1 Bath Three- Bedroom/ 1.5 Bath Three- Bedroom/ 2 Bath Downtown Davenport $471 $775 $925 $850 $1,173 $1,500 $939 $1,986 City of Davenport $496 $595 $680 $775 $949 $819 $956 $835 Quad Cities $496 $627 $680 $844 $953 $1,058 $956 $925 Page 8

11 Downtown Davenport Rent Per Square Foot All unit types in the Downtown have achieved in excess of $1.50 Rent Per Square Foot The distribution of achieved net rent per square foot by unit types reflects some market imbalance with large unit types priced higher on a price per square foot basis than smaller units. - Two-thirds of the three-bedroom units in the downtown have asking net rents of $1.30 per square foot, and higher, compared to one-bedroom units achieving these rates in approximatley one-third of all one-bedroom units. Net Rent Per Square Foot By Unit Type - Downtown $1.50 and Higher $ $1.49 Net Rent Per Square Foot $ $1.39 $ $1.29 $ $1.19 Three-Bedroom Two-Bedroom One-Bedroom $ $1.09 Below $ % 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% Share of Market-Rate Projects - Most of the properties with net rents below $1.00 per square foot are older and offer fewer amenities. There is an opportunity to upgrade some of these properties to achieve higher rents. Page 9

12 Downtown Davenport Amenities/Services To be more competitive, the Downtown needs more housing units with balconies, decks or patios. - A patio/balcony or deck is commonplace in higher-rent properties in the Quad Cities Region. - Most established and well-developed downtowns include a high share of balconies. - Laundry rooms are standard amenities in the region; however, most of the higher-priced downtown properties include in-unit washer/dryer units. Downtown properties exceed the region s amenities standard for fitness centers, multipurpose rooms and in-unit washer/dryers and microwaves. However, the downtown needs more properties with integrated green space for their tenants. - Regional suburban properties incorporate on-site playgrounds and picnic areas. - While on-site playgrounds are atypical for properties in most downtowns, other green space, such as interior courtyards are popular urban amenities. The types of ground floor uses in mixed-use apartment buildings are viewed by prospective tenants as an extension of their apartment unit and overall lifestyle and are a key consideration of whether or not to rent an apartment. - Vacant ground floor space hinders marketability of upper floor apartments - Complementary uses, such as a fitness center, coffee shop or restaurant enhance marketability and often yield rent premiums for apartments Larger properties should capitalize on a continuing trend in downtowns for upscale housing to offer concierge services and high tech options similar to hotels to further promote a unique and vibrant lifestyle. - Package delivery center - Dry cleaning/laundry pick up - Common area Wi-Fi - Door attendant Share of Properties by Amenity Amenities Downtown Quad Cities % Difference Laundry 47.6% 73.3% -25.7% Patio/Deck/Balcony 23.8% 48.8% -25.0% Picnic Area 9.5% 30.2% -20.7% Playground 0.0% 17.4% -17.4% On-Site Mgt. 61.9% 79.1% -17.2% Pool 9.5% 24.4% -14.9% Fitness Center 52.4% 41.9% +10.5% Multi-purpose room 47.6% 29.1% +18.5% In-unit washer/dryer 61.9% 37.2% +24.7% Microwave 71.4% 39.5% +31.9% - Car sharing service or other transportation - Website with online rent pay - Key fob - USB ports Page 10