Developers and builders seek infill sites for premium multifamily development

Driving the Demand

One of the main factors that is driving the demand is the aging Baby Boomer generation. While many in this group are not ready for senior housing, many of them are also eager to downsize. They have no interest in transitioning from comfortable suburban homes to outdated, subpar housing. Instead, they want modern, high-quality residences that offer care-free living and is convenient to their community (or their adult children’s community).

Historically, the Detroit metro area and Michigan have lacked these types of options for empty-nesters and late-career professionals who may be looking to simplify their lifestyles and space. Over the past five years, there has been an increase in developments that appeal to a wider demographic than just recent college graduates. In the suburbs, we see properties with larger units, elevators, garages and fitness centers that are as appealing as off-site gyms. Proximity to major highways, transit options, and walkable amenities—such as dining or parks—improves the location’s marketability.

The appeal of developing new properties, rather than renovating older ones, lies in the ability to meet modern renter expectations for class A apartments. Older buildings often have structural limitations that make upgrades to contemporary standards difficult.

Finding the Right Location

Identifying the right infill sites requires knowing the area and the specific dynamics that are at play in each location. In Michigan, communities with top-rated school systems, strong transportation access, and employment opportunities tend to command the highest rents and support new development. Locations such as Birmingham, Troy, Rochester Hills, Northville and Ann Arbor are prime locations. The best school districts attract more renters and support premium rents

Even for empty nesters, proximity to excellent schools is appealing because these are often the communities where their children and grandchildren are living. The top school systems will always be able to get top rents. For instance, developments in Lake Orion and Rochester Hills are thriving due to their proximity to high-performing schools and desirable community amenities. Moceri is developing high-end apartments on Lake Orion that will likely most appeal to empty-nesters ready to enjoy lake living without the added maintenance that usually comes with such a treasured amenity.

Areas with employment opportunities that are near corporate hubs and airports, healthcare facilities such as hospitals or educational institutions, also tend to offer steady demand for class A rental housing. A good example of a Michigan market that combine those assets is Royal Oak.

Other growth markets, like Shelby Township or the suburbs of Grand Rapids on the west side of the state offer more affordable land and room for growth. However, those markets may see a greater challenge in getting development to pencil out with rising construction costs with achievable rents below those in prime suburban/urban locations.

Overcoming Challenges

Securing the land is only the first step. There are many different issues after that step such as municipal approvals, zoning regulations, and engineering considerations. One of the biggest hurdles is overcoming community resistance to higher-density developments, or the “Not In My Backyard” mindset. Developers that address residents’ concerns up front will have more likelihood of success.  Anticipating their concerns and addressing them as best possible with design and communications will increase the chances for approval.

In suburban settings like Shelby Township, lower-density build-for-rent communities for example, aren’t getting a ton of pushback from residents because they are low and spread out. Projects in urban areas such as Birmingham, Michigan, however, often require demolishing existing structures, and bring much higher density (and traffic) that concerns current residents.

Community leaders that are willing to support new development are needed for the long-term success of their community. New development brings new residents and tax base to a community to support roads, schools and aging infrastructure. It’s often easier to say no to new developments, but that is a short-sighted position to take. The best communities offer a wide range of housing sizes and options that will allow residents to get started in a community and stay throughout different phases of life as their housing needs change.

That said, infill sites often come with unique engineering challenges. For example, former industrial or municipal sites often require environmental remediation, known as brownfield development. Assessing these sites and controlling water management, soil conditions, and infrastructure connections is key. While these complexities can increase development costs, the potential for high returns for creative developers in well-located areas makes the effort worthwhile.

A successful example of this is the Legacy Rochester Hills project, which transformed a former landfill into a vibrant apartment community with the support of state-funded cleanup initiatives (final costs are estimated to be $15MM, partially funded with Brownfield tax credits).

Despite the challenges that may exist, Michigan’s demand for multifamily housing remains strong. For creative developers who understand market dynamics, who can secure quality locations, and navigate regulatory hurdles and engineering difficulties successfully, there are exciting opportunities in infill locations to meet Michigan’s growing need for high-quality housing.

Todd Szymczak is executive vice president of Investment Property Sales for Michigan-based full service commercial real estate firm Farbman Group. To connect with Todd directly, email szymczak@farbman.com.