Overall physical occupancy in the Salt Lake City multifamily market ranges from 90 to 95 percent. Low interest rates continue to lure many apartment residents into home ownership. Because of this trend, landlords have increasingly sweetened their rent terms in order to stem the tide of departing tenants. Rent concessions are approximately 3 to 4 percent with the most generous specials consisting of a $100 deposit requirement and 1 month of free rent with a 12-month lease. Job growth should be about 1 percent or 15,000 new jobs by the end of 2003. This growth, coupled with a decrease in new construction, should curb apartment vacancy in the Salt Lake City area.

In contrast to the positive market conditions experienced by renters, developers must negotiate various hurdles in order to start new apartment construction in the greater Salt Lake City area. Many lenders have become reluctant to provide the financing needed for new multifamily development projects. In addition, various ordinances have made life difficult for developers.

“Barriers to entry [into the multifamily market] are primarily political,” says Kent Nelson, a broker for Hendricks & Partners, an apartment sales and research firm. “Everyone believes in allowing more apartments but [they say] ‘not in my backyard.’”

Furthermore, the Department of Housing and Urban Development has put a “HUD watch” on all counties in the Salt Lake City, Provo and Ogden areas. HUD has its own appraisers analyze and review different multifamily markets. If vacancies are too high in a particular area, the department places it under a market watch, which means that any type of HUD financing will not be approved until the occupancies in that market climb to a certain level. Naturally, other lenders react to this designation by choosing not to fund the building of new apartments in these areas, creating a snowball effect in the multifamily construction market.

Given these factors, most apartment construction is taking place on the outskirts of the urban areas because developers are experiencing difficulties getting entitlements on infill locations or sites closer to Salt Lake City’s neighborhoods. Nelson estimates that 80 percent of new multifamily projects are taking place in “B locations” or less-established areas in middle-income neighborhoods that are still developing commercially. Most new construction is of the mixed-income variety or is part of larger mixed-used projects.

In the past year, about 1,800 apartment units were built in Salt Lake City. Most new construction of multifamily projects is financed through Section 42 tax credit programs. Half of these tax credit projects will house residents earning 50 percent of the area median income. Nelson points toward southern and western Salt Lake County as the next hot spots for multifamily developments because of the availability of land there and the fewer zoning restrictions.

Rental rates for older apartment complexes range from $500 to $650 for two-bedroom, two-bath units. New complexes in quality locations can generate rents of $700 to $1,000 for the same-sized units. Physical vacancy rates register between 9 and 10 percent while true economic vacancy rates, taking into account free rent and other concessions, are closer to 13 percent. The apartment complexes run by the top management companies have better occupancy rates.

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