Memphis Rent Market Finding Balance after COVID Hike

The Daily Memphian

By Jane Roberts

 

Across the city, rent is either nearly flat or dropping as much as 10% as occupancy rates, close to 100% in early 2022, now hover around 92%.

There are bubbles of exception everywhere, but in Midtown, Collierville and Downtown, new apartment complexes are adding competition.

In Downtown, the 210-unit The Oliver will open in September. The building is well into the leasing phase now.

In some cases, occupancies in the core of the Downtown district are as low as 85%, although those tend to be on Main Street and not at South Junction, for instance, which Henry Turley Co. developed, starting in 2014. It now has a pandemic-level occupancy of 97%.

But in July, a one-bedroom at 628 Stratton Circle, off Florida Street, rented for $1,390. In August, a new tenant got it for more than 10% less.

“For us, our goal is to make sure we do everything we can to bring more people Downtown,” said Alex Turley, CEO. “To continue to promote Downtown, to live, work, play, stay — everything. That’s our goal as a company.”

Benjamin Orgel is more direct. His company, Tower Ventures, redeveloped the massive Tennessee Brewery and, this summer, began leasing the 292-unit Harbor Side, opening in December, part of the 65-acre Snuff District on Downtown’s north side.

“Obviously, we have a lot of units Downtown, and we can’t always be at the top of the market,” Orgel said. “The stock market doesn’t set a new record every day.

“Are we at our all-time high of rents and occupancy today? No.”

But, as a company, Tower has outperformed both its seven- and two-year projections on rents in the Snuff District, the mixed-use development it started in 2016, he said.

“Do I wish our occupancy was at 100% today? I do,” Orgel said. “But you can’t be at the top every day and every year.”

The Memphis metro area is set to complete 1,267 rental units in 2024, a record year for apartment construction across the country, according to RentCafe blog’s Apartment Construction Report, released Aug. 29. In the next five years, it projects 5,161 new units will be delivered here, 21% fewer than the 6,552 that opened from 2019-2023.

Higher borrowing costs are taking a toll, prompting developers to adjust their strategy, which means they may focus on lower-risk projects or shift to markets with strong demand and job growth, said Doug Ressler, senior analyst at Yardi Matrix.

“In places like Texas, for instance, the demand for apartments remains robust due to factors like corporate migration and high home prices,” he said.

Rent is pure economics, but it’s personal

The rental market has always reflected a mix of economic factors, including interest rates, high enough now at 6.55% to keep many people from buying a home. For younger renters, many of whom are paying college loans, buying a house means having enough extra for a down payment.

“Those are hard things to crack when you don’t have a lot of income, and you’re just getting on your feet wet out of college,” said Les Binkley, vice president at Boyle Investment Co.

But the market is also awash in new social patterns, including empty-nesters and people, young and older, renting by choice because they don’t want their nest eggs tied up in housing.

“Not everybody wants to have a quarter-acre lot and do the lawn and have a house and do the upkeep,” Binkley said. “There’s a certain aspect of apartment living that has become a luxury because you can avoid all that.”

Beginning in 2020, rents rose 3% to 5% a year for people in a current lease. But for those who were looking for new places, sometimes in the same complex, prices on similarly sized units often were $300 or $400 more expensive, a direct result of the demand the pandemic created.

“COVID actually ended up being a boost for both the apartment industry and the for-sale housing industry because people basically weren’t moving,” said Mark Fogelman, president of Fogelman, a multi-family real estate company with properties in 13 states.

“In the last 12 months, we’ve definitely seen a drop off in occupancies, down approximately 2%. And rental pricing is anywhere from flat to down 5%, based upon location,” he said.

Fogelman manages 23 properties, close to 5,000 units across nearly every market in Shelby County. Rents now range from $700 for a studio to more than $4,000 for a high-end, three-bedroom unit.

“But, we can’t really say we suddenly have a surplus because occupancy rates are still quite high,” Fogelman said.

The market, he said, is finding its balance after the pandemic. Tennessee, a red state, had a measurable uptick in the number of people migrating from states with more restrictive COVID policies.

“We operate apartments throughout the Sun Belt, which really is everything from the Carolinas all the way around to Texas,” Fogelman said. “We saw double the typical number of out-of-state transfers.”

And, based on what Fogelman sees in the company’s turnover rate, many of those new residents stayed.

“I’d say, 55% to 60% of our tenants are renewing today, and it was probably in the low 50s up until a couple of years ago,” he said.

Rents did increase, and substantially, from the start of the pandemic, for people who did not have leases.

It happened for a variety of reasons, including that some local landlords sold their properties to national companies when the COVID rent moratorium forbade them from evicting tenants who didn’t pay.

That restriction lasted a year.

“Those companies came in and applied their national rates here,” said Mary Hamlett, vice president of family programs at MIFA. “Whether Memphis can perform at that level or not, that is their model.”

A WalletHub study released in July ranked Memphis dead last for best cities to rent on a list of 182 cities. The largest reason was cost, said Cassandra Happe, a consumer finance expert on its staff.

“Memphis ranked 168th for affordability,” she said. “That’s in the bottom 25% of the nation.”

WalletHub uses fair-market rent rates to measure affordability, the same rates housing assistance programs use to determine standard payments.

HUD sets the fair market rate on properties that are 10% below the median rate and reflect stays of more than two years, as a way of showing what the conditions are in any market at one time.

From 2022 to 2024, fair-market rent in Memphis for a two-bedroom, plus utilities, rose more than 19% a year, according to WalletHub’s analysis. Nationally, the annual average increase was 12.33%.

“Pre-COVID, we saw rental rates for two-bedroom apartments go from $950 to $1,300 and above for modest to nice rentals,” Hamlett said.

That, she points out, is nearly a 37% increase. The same rates for one bedroom increased by nearly 45%.

“People’s incomes didn’t go up like that,” she said.

“Job layoffs and workplace closings are a big part of it,” Hamlett said. “The other part is the price of everything is increasing all at once, but especially rent.

“We used to have almost no applicants from the suburbs, and now Cordova, Arlington and Millington are taking up a big slice of people getting assistance,” she said.

“So, it’s hitting that lower middle and the working upper.”

And for the first six months of this year, for the first time anyone at MIFA can remember, the agency began receiving more requests for rental assistance than it did for utilities. When the fiscal year ended June 30, rent requests had eclipsed utility requests, 9,810 to 6,750.

She can think of 12 local landlords who sold to national firms like DIWY homes and Progressive Rentals.

“We used to be able to rehouse people with a lower amount than what the fair market rate allowed us to do because we had rental rates that were low,” Hamlett said. “Now, we’re more on par with national averages.”

Rents in Memphis are still “much, much lower” than Nashville, Atlanta and Charlotte on an absolute basis and per-foot basis, said Jimmy Ringel, a partner in Makowsky, Ringel Greenberg Multi-family and Commercial Real Estate.

Wouldn’t happen without incentives

In the City of Memphis, which has the highest tax rate of any city in the state, not one of the apartment complexes that has sprung up in the last three decades would have happened without tax incentives, he said.

In 2016, the Center City Revenue Finance Corp., an arm of the Downtown Memphis Commission, modified its PILOT policy to include smaller projects outside the Central Business Improvement District.

“The policy change made smaller projects eligible for CCRFC PILOTs, and was helpful for Midtown, providing support for projects that would not have happened otherwise,” said Brett Roler, chief operating officer at the DMC.

It paved the way for The Citizen, Orleans Station, the Lofts @ Overton and the other multi-family projects that sprung up between Downtown and the Parkways.

“The point we made to the administration, eight to nine to 10 years ago was, the same situation applied to Midtown that applied to Downtown,” Ringel said.

“You couldn’t afford to build anything Midtown either. And the point we made to the city was that while Downtown needed to be vibrant, and we understood that, you want an economically thriving Midtown area too.”

At Orleans Station, built to provide student housing for University of Tennessee students, rents for one- and two-bedroom units are $1,250 and $1,875. The Citizen ranges from $1,475-$2,260.

Paying for peace, privacy

Sumi Montgomery has a master’s degree, a job she loves and a frightening rental history. Three times in one weekend, an intruder got into the duplex she was renting off Union Avenue and Hollywood Street, the first time breaking in and stealing her spare key.

He then came back, letting himself in until management changed the lock.

It took her three months to find safer housing she could afford. And in her case, the word afford may be relative.

Montgomery pays more than 52% of her income to live at The Arbors Harbor Town — a 30-plus-year-old property tucked in on the island’s south side. Her one-bedroom is $1,357 a month, plus about $100 in utilities.

At 31, she had to have a family friend co-sign her 15-month lease because The Arbors — like nearly every modern apartment complex in the city — requires tenants’ income be at least three times the cost of rent.

For Montgomery, the cost of paying half her salary for housing is the price of feeling safe and not having to have a roommate.

For spending money, she hustles a side gig, taking care of pets.

“I want to stay here as long as I can,” she said. “But, I was just talking to another pet sitter who has been at The Arbors for two years. She is getting ready to move because they keep upping the price.”

It took her three months to find safer housing she could afford. And in her case, the word afford may be relative.

Montgomery pays more than 52% of her income to live at The Arbors Harbor Town — a 30-plus-year-old property tucked in on the island’s south side. Her one-bedroom is $1,357 a month, plus about $100 in utilities.

At 31, she had to have a family friend co-sign her 15-month lease because The Arbors — like nearly every modern apartment complex in the city — requires tenants’ income be at least three times the cost of rent.

For Montgomery, the cost of paying half her salary for housing is the price of feeling safe and not having to have a roommate.

For spending money, she hustles a side gig, taking care of pets.

“I want to stay here as long as I can,” she said. “But, I was just talking to another pet sitter who has been at The Arbors for two years. She is getting ready to move because they keep upping the price.”

When Velma Zahirovic-Herbert, the Martha and Robert Fogelman Chair in Sustainable Real Estate at the University of Memphis, moved to Memphis in 2021, there was little residential property for sale.

She and her husband decided to temporarily rent a condo.

They’ve upgraded several times and now rarely think about buying a home.

“We quite enjoy being the renters,” she said.

“Home prices have been going up ever since we came to Memphis, and the interest rates were high. … To be honest, after selling our home where we lived before, we thought it was just fine to keep those dollars available for other investments, rather than turn them into housing.”

That means for the first time in 30 years, everyone in her family is renting, including her children in San Francisco.

“I’m not surprised this is a trend,” she said. “I think it’s provided my husband and me a lifestyle flexibility we did not think would be achievable if we were homeowners. The development is amenity-rich. We don’t have to worry about gym access, pool access, trash, valet or anything else. It’s 24-hour concierge service. It’s really what we call easy living.”

Singles now prefer to live alone

Families still want two- and three-bedroom units, and there are plenty of them available, Binkley said, but at the Water Tower District in Collierville, Boyle is building an array of one-bedroom-plus floor plans — with a den or half bath or a space to work from home — to cater to surging market of renters who want to live alone.

“People who are single are less likely now to roommate up with others,” Binkley said.

On the younger end, they’re often recent college graduates used to living in the amenity-rich complexes on campus.

“They have already been conditioned to want resort-style amenities and programming and the type of products they leased in college,” Binkley said.

“The whole arms race has changed,” he said with a chuckle. “Their parents were paying for it in college, but there are a lot of parents still supporting their children when they get out into the workforce. That’s not uncommon.”

But there also are people whose incomes dropped in the pandemic or due to unforeseen life changes. That has forced them to live with family or in rental housing later in life.

Kevin Davidson was coaching at Bartlett High after the pandemic. He now drives routes for Pepsi and, for four years, has had a year-to-year lease on North Parkway near St. Jude Children’s Research Hospital. He currently pays $900 to live alone, $200 more than he was paying to live with a roommate in the South Main District several years ago.

“I’m 35,” he said, while waiting for a pickup food order at Huey’s in Midtown. “I don’t feel like I should have to have a roommate.”

He expects living closer to his job in Collierville would cost $500-$600 more a month, which would mean finding a better-paying job and starting over in some ways.

“I’m probably going to move somewhere else. My lease is up in December,” he said. “I plan to start looking in September.”