601 Forest: Demolition begins as Ann Arbor's student housing market braces for more change
Demolition started this week for 601 Forest, with the houses at the southern edge of the high-rise project already gone.
Angela Cesere | AnnArbor.com
Demolition is under way at the corner of South University and South Forest, 4 years and 10 months after Ron Hughes took his first steps toward developing the 601 Forest student high-rise in Ann Arbor.
That deal concluded Friday, putting the project in motion to open in fall 2012, based on construction timetables.
It’s a project that endured significant change over the course of its development until it emerges now as the latest student housing project to hit Ann Arbor and one that could affect existing student housing boundaries in the city.
For Hughes, bringing 601 Forest onto the market not only will end years of work. He also expects it to raise the bar among campus housing options.
“I’m sure there will be other student housing buildings coming online in the future,” Hughes said. “But it will be very difficult … to compete with 601 Forest with the size and scope of amenities we can offer.”
The project will include 606 beds in 173 apartments, ground floor retail space and what Hughes calls “an amenity floor” featuring workout facilities, tanning beds, sauna, theater room, game room and outside hot tub, all on the 2nd floor of the building and with views along South University.
That location, at the intersection of South Forest, is on the edge of the University of Michigan campus and in the midst of one of its key retail corridors.
The location, Hughes said, “is really where the student housing should be. It’s the central hub of campus.”
An aerial view of the 601 Forest site shows the scope of the demolition to date, the eastern property line where an apartment building with remain and the former retail locations that next will be torn down.
Angela Cesere | AnnArbor.com
The deal, meanwhile, signals the ongoing strength of the student housing sector in Ann Arbor. Another project is in the early stages of construction: Zaragon 2, two blocks west of the Diag. A third opened 2 years ago and was just sold to a Texas-based student housing developer and operator.
That two new projects are entering construction while much of the U.S. investment money is chasing distressed property and while construction financing remains extremely difficult to obtain indicates the national draw of the Ann Arbor student housing sector.
“These two deals … are perhaps the only (significant) private sector development in Michigan,” said Peter Allen, a University of Michigan instructor who’s also involved in Ann Arbor real estate.
Allen is marketing the Pizza House property for a high-rise addition above the popular Church Street restaurant, a block west of 601 Forest. He said he’s fielded several developer inquiries on the property and expects more to seek to enter the market.
That market stalled for at least two years as lending dried up. But property with proximity to U-M keeps attracting attention, paralleling growth in the university’s student count, which totaled 41,924 this year.
So while 601 Forest development stalled due to some factors, its natural strength kept the project alive.
“The viability of the project has never changed,” Hughes said. “What did change was our economy. That resulted in the delay of starting construction.”
Hughes attracted two partners to the deal: Campus Acquisitions of Chicago, which signed onto the deal in fall 2009 and will manage the property; Campus Acquisition also brought in Harrison Street Real Estate Capital.
Hughes said he and Campus Acquisitions view the development as a long-term deal that they’ll retain in their portfolios. The pair reworked some of the designs earlier this year to “better reflect CA’s mantra of loft-like units with efficient, open floor plans in an amenity-rich, technologically sophisticated and secure bulding,” said JJ Smith of CA in an email.
Watching the student housing pipeline fill with more than 800 beds that will come online in fall 2002 - likely at top-of-market pricing - raises questions about when the Ann Arbor market will be saturated.
Hughes said that saturation point is unclear. He expects 601 Forest to be fully leased for its first year in the market.
Steve Kaplan of Varsity Management agrees that it’s hard to define how much is too much when it comes to new student housing.
“I don’t think that supply - so far - is outstripping demand,” he said. “That said, there’s a lot of sub-categories within that supply. I don’t know how many people are willing to pay $1,000 per bed.”
Existing properties near campus rent for a range of $550 per room up to about $850, Kaplan said. The Courtyards, new construction near North Campus, was renting last year for $680 per bed.
Hughes said the pricing for 601 Forest hasn’t been determined. Industry experts expect it to be in the range of $1,000 per bed; Zaragon Place on East University was at $1,119, according to industry data.
While that pricing can work for brand-new construction and help a developer cover construction costs, Kaplan does raise the question about how long a building can sustain top-of-market rent. And, he said, their size mean that management will have to fight perception that the buildings resemble large, private dormitories.
Still, he said, “there’s room for growth to some extent in student housing.”
Meanwhile, as Hughes anticipates the opening of 601 Forest in fall 2012, he recognizes that it will affect student housing that exists around campus, with much of the impact predicted for the edge of residential districts.
The new construction, he said, should have a positive impact in those areas as housing is converted back to single-family homes.
"I think that will be a plus for the neighborhoods," he said.
Paula Gardner is Business News Director of AnnArbor.com. Contact her at 734-623-2586 or by email. Sign up for the weekly Business Review newsletter, distributed every Thursday, here.
Comments
Some Guy in 734
Fri, Jan 14, 2011 : 10:26 a.m.
You can still find it on Yelp... search for Sarah's Campus Dollar Store.
Killroy
Fri, Jan 14, 2011 : 8:11 a.m.
@ Some Guy in 734, I had no idea that was already tried? When and where was it located?
Some Guy in 734
Fri, Jan 14, 2011 : 7:13 a.m.
I'm sure students could use a Dollar Store along South University as well. But when they had a dollar store there, they didn't seem to use it much--at least, not enough to keep it open.
Soothslayer
Thu, Jan 13, 2011 : 6:16 p.m.
The new models is to rent apartments "per bed" so each renter will have their own bedroom in a combination of 2, 4 or 6 bedroom apartment units. There will be no bunk beds. Demand is high because of the premium location and they will fill up fast and more developments will come in the same area to replace the crummy shops/underutilized land (ever play Sim City?). Mid-rise housing is the answer as it is the best land use and reduces transportation time to nil (walk across the street to central campus). The demand is there and these developments are a no brainer. Pricing may be adjusted according to ammenities and location. This IS all Econ 101. Hopefully some of the slumlord homes may be able to return to actual original intended use and/or the room price asked on those is going to get hammered in the coming year.
Soothslayer
Thu, Jan 13, 2011 : 6:16 p.m.
The new models is to rent apartments "per bed" so each renter will have their own bedroom in a combination of 2, 4 or 6 bedroom apartment units. There will be no bunk beds. Demand is high because of the premium location and they will fill up fast and more developments will come in the same area to replace the crummy shops/underutilized land (ever play Sim City?). Mid-rise housing is the answer as it is the best land use and reduces transportation time to nil (walk across the street to central campus). The demand is there and these developments are a no brainer. Pricing may be adjusted according to ammenities and location. This IS all Econ 101. Hopefully some of the slumlord homes may be able to return to actual original intended use and/or the room price asked on those is going to get hammered in the coming year.
seldon
Thu, Jan 13, 2011 : 5:14 p.m.
@EyeHeartA2: "Maybe nobody knows anything about econ?" After what's happened during the past few years, I'm starting to believe that.
seldon
Thu, Jan 13, 2011 : 5:14 p.m.
@EyeHeartA2: "Maybe nobody knows anything about econ?" After what's happened during the past few years, I'm starting to believe that.
Marshall Applewhite
Thu, Jan 13, 2011 : 2:59 p.m.
I can accept these buildings, provided that there is actually a decrease in property taxes. This year's taxes on my portfolio of houses were through the roof!
John B.
Thu, Jan 13, 2011 : 2:12 p.m.
Tom J: You are neglecting to recall that the top 1% in this country now earn more than the bottom 90% combined. The (primarily) East-Coast parents that pay for these fancy high-rise units are often from that 1%, so it's not even a slight problem for them. These are the same folks that take their incoming Freshman to the local BMW dealer, have her/him pick out an M3 in her/his choice of color, and pay cash for it.... That said, supply and demand does still apply somewhat, so yes, there may be other high-rises that aren't brand-new that might have to drop their $1000+ price to $900 or so to keep their building full.
Speechless
Thu, Jan 13, 2011 : 2:02 p.m.
"... This will be a boondoggle failure in the continuing flailing economy." If enough students and their parents find the living quarters in the new tower to be reasonably constructed and clean, then this development should work. U-M families have pretty deep pockets these days. The big losers will be the campus slumlords with aged rentals in neighborhoods to the south and east. What I find unfortunate about this new tower, along with the nearby Zaragon I, is that they both replace structures or institutions that were among the more interesting in town. Village Corner managed to maintain a degree of its earlier, decidedly offbeat '70s flavor, and it was one of the few reasons to visit this student-oriented commercial district. Nice wine section, especially. Zaragon I, meanwhile, sits on the former site of the Anberay Apartments, a building which at one point was historically protected by the city. When the architecturally unique Anberay was vacated prior to demolition, I seem to recall that Charlie's had just shut its doors over at the other end of the same block. At that moment, I wish it would have somehow been possible to swap ownership for these two sites, resulting in Charlie's being torn down instead.
treetowncartel
Thu, Jan 13, 2011 : 12:30 p.m.
Man, there goes a lot of memories from my youth. I practically lived at that intersection from about 6th grade until my friends and I got our drivers licenses.
Tom Joad
Thu, Jan 13, 2011 : 12:16 p.m.
This article only says 173 apartments with 606 beds or 3.5 beds per apartment. That reads to me as BUNKBEDS and doubling and tripling up of students in each room, of course they'll have their own bed, but still must share a room for a $1000 a month! This will be a boondoggle failure in the continuing flailing economy.
blahblahblah
Thu, Jan 13, 2011 : 11:12 a.m.
Density, density, density! The tree huggers should actually be happy about these projects. I say stack the students vertically not horizontally. Lower their housing footprint on Ann Arbor to free up space for others and also make their trip to and fro to the bars shorter and safer.
Killroy
Thu, Jan 13, 2011 : 11:07 a.m.
Get ready for vacant condos, just like on the other side of town. I'm sure students could use a Dollar Store along South University as well. I am all for development, but it has to be more strategic and not simply pushed through in the hopes of plugging shrinking city budgets.
xmo
Thu, Jan 13, 2011 : 10:45 a.m.
Yea, more jobs, more apartments for more students, more money spent with local businesses, more taxes raised, everybody wins except the tree-huggers!:) I almost forgot, more drunks which will cause more tickets and DUI's and more Revenue for AAPD!
John Q
Thu, Jan 13, 2011 : 9:59 a.m.
How did this get approved in "anti-development" Ann Arbor?
KJMClark
Thu, Jan 13, 2011 : 8:52 a.m.
Um, John, you might want to crack open that econ 101 textbook. If the supply increases, unless there is more demand (more students, or more willingness to pay more), then the net effect of these units will be falling prices. These units will either sit empty because they've priced themselves out of the market, or more likely, some place that was charging $1000/month will end up with vacancies. The landlord will lower the price for those units a bit to avoid having an empty unit, and that will cause someone else down the line to lose a tenant. They'll have to lower their rates a bit, and so on. This just means more competition at the top end of the market, and competition almost always leads to price adjustments; downward in this case unless there is an increase in demand at the same time.
Vast
Thu, Jan 13, 2011 : 8:28 a.m.
fantastic, you know there's always EMU in up and coming Ypsilanti after UM privatizes...
Mich Res and Alum
Thu, Jan 13, 2011 : 7:56 a.m.
"I just feel bad for the parents that have kids at U of M and have to pay through their nose for renting a house.." Don't think every UM student is lucky enough to have parents paying for rent. Many like me have to shell out 500-700 a month out of our own pocket (or worse, from student loan funds) if we want our own bedroom. I'm also wondering if this turns into a polarizing thing in the UM student body: the kids from the east coast or with wealthy parents can afford those fancy highrise lofts while the in-staters and others paying their own way are stuck in the same run-down houses, but now paying extra because of the market shift.
John Alan
Thu, Jan 13, 2011 : 6:44 a.m.
More of these $1000+/room/month housing.......... This is just a very good news for the landlords!!!!! As these new constructions ask for $1000+/month, suddently if one asks for $700 or $800 per room in an old house, that will look like a deal (20% to 30% off the market rate --- look at your other choice)...... Not bad, going from $550 per room to over $700 and no one will even blink.... Got to be interesting to see what comes out of this.... Time to start buying student housing.... it is going to be a gold mine.... I just feel bad for the parents that have kids at U of M and have to pay through their nose for renting a house....