Real Estate

Landlords Say Rental Market Holding Steady

YOUNGSTOWN, Ohio – Despite economic waves in the region, the rental market is staying the course, landlords say.

The last year brought some big changes in the region. National retailers closed their doors, Steward Health Care shuttered Northside Regional Medical Center in late 2018 and this month saw the final Chevrolet Cruze roll off the line at the General Motors Lordstown Complex.

It’s too early to tell whether these economic changes will affect the rental market, says Jeff Simon, president of Simco Management Corp. in Girard. He acknowledges that a mass exodus of people looking for work would hurt the community as a whole, but says the rental market shouldn’t be hit too hard.

“I’m optimistic that the rental market in the Valley is going to stay strong, even with the headwinds we face with GM and Northside,” Simon says. “I plan on continuing to put money into our properties and giving our residents the value that they deserve.”

Simco has enjoyed “several years of solid occupancy,” with some 3,500 units throughout western Pennsylvania and northeastern Ohio, the majority of which are in Boardman, Niles, Hubbard and Warren, Simon says.

Most of the units are apartments, but the company has some townhouses as well as mobile-home lots in Canton and Calcutta, he says.

B&I Management Co., Mineral Ridge, maintains a 5% vacancy rate on average for its 650 units at Central Park West in Austintown, “which is pretty good,” says vice president Jeff Solomon. Closings at GM and Northside have had “a little effect” on occupancy, “but nothing detrimental,” he says.

Should some tenants leave, he expects to fill voids through other homeowners, such as retirees, downsizing.

“Some people leave us to buy a home, or they sell their home and come to us. In a lot of cases, it can be a wash,” he says

Solomon credits the low cost of living in the area for the ability of B&I to maintain low rental rates while still attracting tenants by making upgrades to buildings. “Market rents in the area compared nationally are on the low end – we’re probably one of the cheapest in the country,” he says.

Economic changes encourage Isaak Volodarsky, CEO of the Brookfall Group, a New Jersey-based real estate investment firm. Although the loss of top employers such as GM and Northside can present a challenge should those residents leave the area, Volodarsky sees benefit in the regional economy shifting “from a single employer to service industries,” he says.

“The economy has been depressed here for so long, and we definitely have seen in the last three to four years a huge uptick in the economy,” he says. “What this region is doing quite well is diversifying away from any kind of single employer.”

Health care still employs many in the area, Volodarsky says, and he sees a bright future with the development of the Royal Dutch Shell ethane cracker plant in western Pennsylvania, the Cafaro Co. Enterprise Park project in Niles and the proposed TJX Companies’ HomeGoods distribution center in Lordstown.

The area also benefits from being situated between Cleveland and Pittsburgh, which have stronger economies, he adds. “We fully believe that, sooner or later, a rising tide will lift all ships.”

Volodarsky was initially drawn to the area in 2010 by the oil and gas industry “with the expectation to buy mineral rights,” but realized there was “enormous opportunity” in real estate, he says.

“The [capitalization] rate of return is significantly higher than what we get in New Jersey,” he says.

The low cost of living here makes it attractive for investors who would rather put their money in existing properties than build new in major metros, he says.

Throughout the United States, some 650,000 units are under construction, but more than 80% will be priced in the top 10% of market rents, reports National Real Estate Investor. Average monthly rents in those markets can eclipse $1,700.

Typical tenants in the Youngstown area cannot afford rents that high, so building new doesn’t make sense, Volodarsky says. Brookfall currently rents its apartments for $500 to $600 a month, generally to low-income residents, about 20% of whom receive Section 8 or some other form of housing assistance, he says.

“We are slowly trying to increase rents, and we see rents are increasing accordingly to inflation, which is 2% to 3% per year,” he says. “I don’t see any drastic spike in rents.”

While Brookfall’s headquarters is in New Jersey, the firm hires locally to manage its holdings and Volodarsky himself comes to the area every other week, he says.

Brookfall follows a value-add strategy, in which it buys a distressed property, invests in its renovation and increases occupancy to add value. Volodarsky declined to specify how much Brookfall has invested thus far in its area holdings, but says the company is buying properties that range up to $30,000 per door.

One of its most recent purchases, for $2.1 million, is a multi-unit property at 838 E. Midlothian Blvd. It was bought in October under the holding entity Turnberry Real Estate LLC, according to the Mahoning County auditor website.

“As of now, we have 550 units and we are looking to increase our holdings,” Volodarsky says. “We are responsible landlords. Some properties we bought are in excellent condition, some properties we bought in not such a good condition. But we are reinvesting money in those properties.”

Investments include new roofs when needed, coin-operated laundry machines and security measures, such as additional cameras and locked entrances. “Whenever you are a responsible landlord and you take care of your property, you do get a much higher caliber of tenant,” he says.

The company looks to expand into other parts of northeastern Ohio, western Pennsylvania and West Virginia, he says. However, he and other investors are keeping a close eye on interest rates. The Federal Reserve raised interest rates four times last year, but indicated that it wouldn’t raise them again in 2019.

“Historically, we still are at very low rates,” he says. “However, if rates go up, we definitely will slow down” making investments.

Simco hasn’t built or bought properties since 1992 when it bought Southcreek Apartments in Boardman, Simon says.

Most of its portfolio was built in the 1970s and ’80s, which it has kept up by making capital expenditures at the properties annually. Such improvements include new windows, siding, roofs and HVAC, with ongoing remodeling of kitchens and bathrooms, he says.

Rents have increased modestly over the last decade, Simon says, which is important to keep up with maintenance. Currently, rents at Simco properties range from $550 for an efficiency apartment in Boardman to $1,260 at Southcreek, he says.

Should the opportunity present itself, he says the company would consider buying more properties or building new, “but at this point, with the values being pretty strong, it’s not the right time to buy,” he says. In 2009, after the Great Recession ended, “that would have been a good time to buy” because values came down, he says.

At the time, “the money spigot was totally turned off in every segment of our economy,” from commercial investors to people trying to buy a house, says Martin Solomon, president of B&I.

“If you wanted to buy something and you couldn’t qualify, you had to rent,” Solomon says. “So apartments became very popular.”

Today, Solomon sees apartments are still “one of the preferred real estate investments, particularly because of “a pretty mobile society” in which people move from city to city for work, or change neighborhoods often, he says.

Brokers actively pursue new investments, including B&I’s Central Park West complex, although Solomon says he isn’t interested in selling.

“We built it up over the years. It’s a good property,” he says. “We have reinvested large amounts of capital into rehabilitating all the time, upgrading and maintaining our properties.”

Demographically, renters comprise all ages, sexes and income levels, although B&I’s Jeff Solomon has seen younger generations push toward renting, he says, particularly with the townhomes at Central Park West.

“With the townhomes, there is less responsibility than being a homeowner,” he says. “If their schedules are busy these days, they don’t have time to tend to the home. If you rent, we take care of the maintenance.”

That goes for single-family house rentals as well, adds Martin Solomon, Jeff’s father. After the Great Recession forced some homeowners into foreclosure, national, multimillion-dollar investors bought those properties and rented them out, “so that also became a market,” he says.

A February survey by Bankrate found the current $1.5 trillion in student-loan debt is forcing some younger Americans to delay certain milestones and life events, including home ownership. Of the nearly 4,000 surveyed, 23% reported delaying buying a house because of student-loan debt.

Pictured: Simco Management keeps up with its properties – such as Southcreek Apartments in Boardman – by making capital improvements including new windows, siding, roofs and HVAC, says President Jeff Simon.

 

Published by The Business Journal, Youngstown, Ohio.