Renters, brace yourselves: Change is coming to Boise apartment construction. You’ll pay
There’s still a shortage of affordable housing in the Boise area. But after years of roaring apartment construction, the rush to build multifamily homes in the Treasure Valley is over.
In the last five years, permits were issued for over 15,000 units as developers sought to boost supply and take advantage of the rapidly growing market. Now, multifamily building permits have dwindled, and local developers say the industry is uncertain.
So what happened?
Rising costs for land, labor and materials, along with tighter lending standards from regional banks, have forced some developers to postpone plans, alter projects or back out entirely. The shift could dampen affordability in the years to come.
“It’s a perfect storm,” said Clay Carley, longtime downtown developer and owner of Old Boise. “The prudent ones have said ‘I’m going to wait.’”
Carley is behind several downtown Boise apartment projects including The Owyhee, a former historic hotel; and The Lucy and Thomas Logan, two adjacent buildings on the corners of Fifth and Sixth streets. He told the Idaho Statesman by phone that he doesn’t have any projects under construction now. But he does own land that he wants to develop, and he’s prepared to wait years to do it.
Multifamily permits decrease
TOK Commercial, an Idaho commercial real estate agency, said in its latest quarterly land market report that new-apartment construction permits in the Boise area have fallen by two-thirds in the last year.
For the first four months of 2023, there were 596 multifamily units planned in the Boise Metropolitan Statistical Area, which includes Boise, Meridian, Nampa and Garden City. There were over 4,739 units in 2022.
The report also said permit values dropped more than 50% compared with the first four months of 2022.
Of those permits, 346 were in Meridian, 206 were in Boise, 32 were in Nampa and 12 were in Garden City, according to Taylor Hill, research manager for TOK Commercial, citing data from Construction Monitor, which collects and reports building-permit information in the U.S.
Andrew Boespflug, who specializes in multifamily housing at TOK Commercial, said the permits issued earlier this year were for projects whose planning began months or years earlier.
“There’s a significant timeline between when projects are conceptualized versus when the permit is actually pulled,” Boespflug said by phone. “The permit gives you the legal entitlement to begin construction, but it doesn’t mean you have to. There are times when developers will pull permits and you won’t see construction for months afterward.”
Developers can sit on an entitled project if they don’t think it’s the right time to build, but they can’t wait forever. Entitlements expire. Their shelf lives vary by municipality. In Boise, a building permit lasts 180 days.
‘A ton of uncertainty’
Boespflug said he’s heard from developers lately who are delaying or changing the scope of their projects. A few have said they may decide to sell.
But what about all that construction happening in downtown Boise, along Garden City’s waterfront and in western Meridian and Nampa? Two of the most prominent buildings are:
Oppenheimer Development Corp.’s 26-story mixed-use downtown tower named 12th and Idaho that’s expected to be completed in May 2025. The building, one of Idaho’s tallest, would have ground floor retail space and 298 apartments.
The Boardwalk, a 234-apartment complex along the south side of the Boise River, just east of Veterans Memorial Parkway in Garden City. The 5-floor south wing, which houses 96 of the units, is already open. The 6-floor north and west wings are slated to be completed in early 2024. The developer, Boise’s Vida Properties, also plans an adjacent 18-story residential tower with 111 apartments.
“There’s a lot of projects under construction right now,” Boespflug said. “What we’ve seen is that those groups that began the construction process near the end of 2022 or beginning of 2023 have decided to bite the bullet and forge ahead. Anyone who’s currently in the entitlement process, deciding whether or not to move forward on a project — we’re seeing a ton of uncertainty.”
There are some exceptions, like if a project is planned in a prime location, or if the developer has the money to complete it without taking on too much debt.
Construction costs escalate
Casey Lynch, founder and CEO of Roundhouse, a Boise development company that relocated from Los Angeles a few years ago, is adjusting plans to changes in the market.
Roundhouse is responsible for developing downtown apartment buildings like The Fowler, the Watercooler and Hearth on Broad. Some of its buildings sprouted up from surface parking lots and were the first multifamily mixed-use projects constructed in downtown Boise in decades.
The company is nearing completion of the Dovetail apartments in Meridian, a 240-unit garden-style complex at 1350 N. Webb Way, and is working on another project called the Avens in Boise’s West End, set to have 187 units among two connected buildings at the northwest corner of Fairview Avenue and 27th Street.
But as prices for labor and materials rise, Lynch said Roundhouse is reevaluating some of its plans.
“Because of escalation in construction costs, we are going through some redesign of the (Avens) to see if we can lower the total cost so that the project makes economic sense to build,” said Lynch, who was one of the first out-of-state developers to come to Boise in 2011.
He said Roundhouse has two other projects planned for downtown Boise that have been shelved for the foreseeable future.
One is a large-scale development on Broad Street called the Saltbox. Preliminary applications with the city show that it would occupy three-fourths of a block between Fourth and Fifth streets with apartment buildings, an underground parking garage and a 12-story hotel with a ground-floor restaurant and bar.
Roundhouse already owns the land.
“But based on initial pricing feedback from contractors, it was so far from making sense that we’ve decided to just put it on hold for the time being,” Lynch said by phone.
‘Really high rates’
He said plans for the Saltbox could be revisited as soon as next year, but that depends on whether construction costs level out. In addition to a shortage of construction workers, the prices for materials like steel, lumber and concrete rose more than 19% in 2022, according to the National Association of Home Builders.
The three most common types of multifamily housing — garden style, mid-rise and high-rise — require those materials.
Garden style is low-density, wood-frame-over-concrete construction that tends to be three or four stories tall, without an elevator, according to Lynch. That’s typically the lowest-cost type of multifamily housing developers can build. It’s less likely to be built in downtown Boise than in less densely developed areas.
Mid-rise, the middle ground for apartments, is wood frame over concrete as well, but it’s usually limited by building codes to seven or eight stories.
High-rise construction is most often done with steel and concrete, and while it involves the highest density of units per acre — typically at least 140 units or more — it’s also the most expensive to build.
Lynch argues that low-density housing projects are not the best use of densely populated land, but they are cheaper and more profitable to build.
“Our big focus in downtown is doing the right thing, the best thing for the built environment long term, which means higher density projects,” Lynch said. “Once you build something on land in downtown, you’re stuck with it for decades.”
The Fowler was the first mid-rise apartment complex Roundhouse built in downtown Boise. The company bid out the construction in 2015. Lynch said he crunched the numbers and the total cost, including land, to build a similar project today would be 100% to 125% higher.
Carley said the cost of mechanical, electrical, plumbing and drywall work has risen substantially in the past few years.
“They are still charging really high rates because they’re busy,” Carley said. “Their calendars are full and they don’t have to be competitive, so they’re bidding high prices. Just finding labor is difficult.”
He pointed to Ball Ventures Ahlquist’s 13-story, two-tower office and apartment building planned on the northeast corner of North 4th and West Idaho streets. The high-profile building was put on hold last year because of escalating construction costs, according to previous Statesman reporting. A three-story Idaho Central Credit Union branch there had already been demolished. A chain-link fence now surrounds the site.
Land prices soar
As more out-of-state developers turned to Boise for their latest projects, land prices in the Treasure Valley skyrocketed.
Carley, a self-described fifth-generation Idahoan who first came on the scene in 2000, when out-of-state developers were unheard of, said the city was once too small and provincial to attract outside investors.
That all changed over the last decade.
“They said ‘It’s going to be in the big leagues and we need to get in,’” Carley said. “So they started buying land at very high prices. They started entitling these projects assuming or hoping things would continue as they were — low interest rates, high growth and high demand. It was a no-brainer.”
But lately, as land prices continue to climb, he said many of those developers have shifted course.
TOK Commercial said in its land report that the median price per square foot in the Boise area increased by 18% or more compared with the previous year.
Five years ago, when the Gibson apartments were built at Fifth and Idaho streets behind City Hall, the land was appraised at $80 a foot, according to Carley. Now, it’s worth more than twice that.
“I can afford to wait,” Carley said. “I own land that I purchased a long time ago, so I don’t have to build. But invest that kind of money in land today — you have a gun to your head to develop it. Every day you don’t it’s just money out the door.”
Lenders pare back
Tighter lending standards from regional banks are also making it more difficult for developers to secure funding for multifamily projects.
Wes Jost, senior director of Zions Bank’s Idaho Real Estate Banking Group, said that while Zions hasn’t pared its lending, it has received referrals from other banks that have.
“We’ve noticed a slight uptick in requests,” Jost told the Statesman by phone. “We’ve seen a steady flow from our existing clients, and new clients have ticked up a bit more because of the general pullback in lending. Developers that are still wanting to do their projects are trying to figure out which creditors are open to having that dialogue.”
While some banks are still working out deals, they’re lending at higher interest rates and making smaller loans than in the past, according to Boespflug. For example, a developer who could get a $1 million loan last year, when interest rates were around 4%, this year might get only a $700,000 loan, with interest rates around 7%.
“That loan may still be available, but the terms are not nearly as attractive,” Boespflug said.
He also said that those who borrowed money to buy land at the height of the real estate market in 2022 can’t keep making payments with no revenue indefinitely. Some must decide whether to continue with a project or sell the property.
“Refinancing is pretty much off the table, because of where (interest) rates are at today,” he said. “The only other option is to sell. You’re going to have groups that say ‘I can’t hold on forever; this isn’t going to work.’”
‘Much higher rents’
Lynch said the area does not have the supply of apartments it needs to face current and coming growth.
“Boise is on the front page of The New York Times and everyone wants to invest here, but the reality is, this market is not really going to be overbuilt or oversupplied with housing,” Lynch said. “Most of the things that are under construction currently, like our project Dovetail, will lease up, absorb and become full. Beyond that, there will be very little new housing being delivered to the market.”
Another spike in rents may follow.
The median rent in Boise now is $1,123 for a one-bedroom and $1,327 for a two-bedroom, according to a July rental report from Apartment List. The report said prices are down 6.3% year-over-year.
Carley and Lynch agree that even without a housing shortage, rising costs for developers could force rents up.
“The rent you need to get to cover the interest rate on the loan is not in the market today,” Carley said. “You have to get higher rents. Much higher rents.”
Developers look to Boise’s suburbs
While Boise appears ripe for more development, Lynch says a few reasons make the city difficult to build in.
“A lot of local people own the land here, and they tend not to sell,” Lynch said. “If you look at downtown, there’s a number of long-term families in Boise that own much of the real estate.” Among them: the descendants of the late billionaire J.R. Simplot, founder of the Boise agribusiness giant that bears his name.
Lynch said many out-of-state developers enamored with Boise ended up building in the surrounding cities instead, where land is cheaper and more readily available. That’s where most new housing is going up now.
The latest Census Bureau data shows that Ada County grew by 4.8% in the last two years and gained nearly 24,000 people, according to prior reporting by the Statesman. By July 2022, Ada County was home to more than 518,000 people.
Canyon County grew by 8.6% and gained nearly 20,000 residents, bringing its population to about 250,000.
Lynch and Carley noted Micron’s plans to build a large new plant for memory manufacturing over the next decade on its Southeast Boise campus. Micron has said the plant will add thousands of “high-wage” jobs to the Treasure Valley.
The expansion from the state’s largest for-profit employer could put the city back on the map for other tech businesses. But where will all the workers live?
“You cannot ignore it and say, “Well, if we don’t build it, they’re just not going to come,’” Lynch said. “They will come anyway. And as far as housing is concerned, they’re going to come, and they’re going to drive up housing prices if we don’t keep up with production.”
Other apartment complexes in the works
A partial list:
California developer CenterCal plans to build 550 high-end apartments at The Village at Meridian in two six-story buildings.
The Northwest Village, proposed by TV Holdings and Zion Ventures, would add 264 affordable apartments to the northeast corner of Karcher and Sundance roads in Nampa. The complex was hotly contested by the public.
The Franklin apartments, the first to go up on land set aside by the city of Boise’s Housing Land Trust, are under construction at the southwest corner of Franklin Road and Orchard Street. The 205-unit complex is geared mostly to low-income renters earning up to 60% of the area median income.
Peter Estay, of Enclave Development in Driggs, wants to build 306 apartments at the northwest corner of Garrity Boulevard and Can Ada Road near Interstate 84 in Nampa.
Alpha Development Group submitted permit requests valued at $48 million to start building 205 apartments near the base of the Military Reserve trails in Boise’s East End. They would go up alongside the former Idaho National Guard Armory.
The Victory Flats complex proposed by Layton Construction would add 301 apartments and town houses between South Trabuco Avenue and South Milwaukee Lane in Southwest Boise.
Boise-based Hawkins Cos. secured $56 million in construction financing from Sunwest Bank to build 287 apartments north of Micron in Southeast Boise. The five-building complex planned on Gowen Road is called Canyon Ridge.
Pacific West Communities, of Eagle, plans to build 201 apartments near Saint Alphonsus Regional Medical Center. The five-story complex would be for people making between 30% and 80% of the local median income, which in Boise is between $22,750 and $60,650 for a family of three.
The Broadstone Saratoga planned by Seattle’s Alliance Realty Partners is a seven-story, mixed-use downtown building with 334 apartment units and ground-floor commercial space. The $100 million project would encompass an entire city block bordered by 12th, 13th, Grove and Front streets.
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