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Real Estate - Residential

Accounting For Wilmington's Rising Rents

By Cece Nunn, posted Jul 15, 2022
A rendering shows Starway Village, a workforce housing development coming to Carolina Beach Road in Wilmington. (Rendering c/o Starway Village)
Nearly every week, a new study emerges analyzing the rise of rental rates in communities throughout the U.S., including Wilmington.
 
Some studies single out the Port City as a market where increases are more significant than others, including a YardiMatrix report issued in June.
 
According to the rent forecast update, 84 markets in the U.S. experienced a greater-than-1% month-over-month increase in rental rates in May, and seven topped 2%: Wilmington, Charleston, Knoxville, the Bay Area-South Bay, Miami, the combo of Minneapolis and St. Paul in Minnesota, and Portland, Maine.
 
“The biggest increases were concentrated in secondary and tertiary markets that continue to outperform expectations, with Scranton-Wilkes-Barre, Wilmington, South Bend and Spokane all seeing a greater-than-5% increase for our end-of-2022 forecast,” wrote researchers for Yardi Matrix, a commercial real estate data firm.
 
Developer Porter Jones, who has created three apartment communities in Wilmington, said he and his partners have not seen Wilmington’s rent grow more than other comparable cities in the Southeast over the past few years.
 
“Myrtle Beach, for example, has grown rents much more than Wilmington,” Jones said. “I can’t explain it but rents in Myrtle Beach are between 10-20% higher than Wilmington when comparing Class A assets in comparable locations and asset quality.”
 
Citing data from rent.com, South Carolina TV station WBTW reported June 20 that the average one-bedroom apartment in Myrtle Beach rents for $1,595, a 17% increase from last year. Apartment tracking websites put Wilmington’s average rent at around $1,500.
 
The rents at 17 Social, a complex with more than 250 apartments at 1625 S. 17th St., are up 8 to 10% from a year ago, Jones said. But he also pointed out there are several markets in the Southeast that have seen 15% growth over last year.
 
Housing affordability is defined as an individual paying no more than 30% of their income for housing and related costs. Local studies have shown that a majority of residents in New Hanover County are paying more than that for their housing.
 
Wilmington officials and developers have struggled to address the problem for a variety of reasons, including a lack of available land in Wilmington.
 
But there have been flashes of movement. Developers were notified in late June that the N.C. Housing Finance Agency (NCHFA) tapped a Wilmington affordable housing project for a critical award. Starway Village, planned for Carolina Beach Road, will receive a 4% Low-Income Housing Tax Credit (LIHTC) award and a tax-free bond allocation.
 
“That was a big hurdle, and now we’re working toward a groundbreaking later this year,” said Ted Heilbron, of Kelley Development Co., the firm creating Starway Village with Bradley Develop ment. “We continue to move forward and are really excited about delivering a project that’s clearly needed.”
 
Simplified, the award makes projects like Starway Village feasible because about 40% of the construction costs come back to the development as tax credits.
 
The only other 4% LIHTC-awarded project in Wilmington in recent years appears to be Cypress Cove, a 200-unit apartment project that was built on 14 acres at 621 Emory St. The $30 million development opened around 2018.
 
As of July 7, no other proposed developments had been awarded tax credits in New Hanover, Brunswick and Pender counties this year, according to NCHFA officials.
 
All of the one- to three-bedroom units at Starway Village will be affordable to households earning 60% of the area’s median income, Heilbron said. As of 2021, that income range, depending on household size, was from $27,346 to $47,550, translating to rents from $754 to $999 (with water and sewer costs included), officials said last year.
 
In addition to the tax credit award, the apartments also would not have been possible without an infusion of cash from the city of Wilmington and New Hanover County, Heilbron said. The city and county both used American Rescue Plan funds to allocate $3.5 million and $1.9 million, respectively, in gap financing.
 
Starway Village will remain a source of affordable housing for at least 30 years, Heilbron said. 
Heilbron said with an anticipated 18-month build-out for Starway Village, he sees the potential for residents being able to move in by 2024.
 
Heilbron said his development partnership would “absolutely” consider working on another affordable housing project in the Wilmington area.
 
While Starway Village rents will remain in the affordable category for decades, market-rate and luxury rents are expected to continue rising. Sometimes those hikes come when existing complexes are sold. 
 
Investors purchased an apartment complex near Novant Health New Hanover Regional Medical Centerfor $3.6 million, intending to capture demand for furnished rental housing. The Diamond, at 1627 Little John Circle off South 17th Street, holds 25 studio apartments and one commercial space. 
 
Nick Chapman, founder and managing partner of buyer South East Family Housing, said, “We’re taking [The Diamond] from traditional 12-month leases to furnished rentals for traveling nurses, health care professionals, film industry crews – there’s just a huge demand for furnished housing.”
 
With a 90-day lease minimum, the 450-square-foot apartments currently rent for about $2,000 a month, a rate that includes all utilities, he said.
 
Rates at The Diamond jumped from about $700 in 2017 to around $850 last year. That was under a workforce housing model implemented by previous owner PBW Holdings.
 
But while the property now targets a higher-income level, the previous owners felt the sale made the most sense for their business, said Dave Spetrino, one of the managers of PBW Holdings, which continues to develop more rental housing. 
 
“For us, we have seen a number of people coming into the market looking to get a foothold in Wilmington and Wilmington’s long-term growth, and that was a property that made sense for the buyer to purchase and it allowed us to use those dollars to further the mission we’ve established for our community,” Spetrino said.
 
That mission, he said, is to provide “clean, safe housing for our local workforce.”
 
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