When Archstone first entered the multi-family real estate market in 2021, we recognized Iowa as an ideal region for our value-add approach. Cities like Davenport, Des Moines, and Iowa City are where we made our first acquisitions.
With a growing population and strong, diverse economy, the state was—and continues to be—a prime opportunity for housing investment. Our focus on Class B+ and C, as well as workforce housing, has proven to be a smart strategy in the region.
A story of growth
The state of Iowa continues to grow steadily each year. Des Moines, in fact, leads the Midwest in population growth, increasing 3.1% between 2020 and 2023. The next largest Midwest city, Indianapolis, saw 2.3% bump in that same period. Meanwhile, Iowa City has grown 1.36% since 2020.
Perhaps unsurprisingly, this is happening alongside a relatively strong period in Iowa’s economy. The unemployment rate for the entire state sits at 2.8%. Compare that to the national rate of 4.3%.
Outside of its largest cities, Midwestern residents remain budget conscious. Earlier this month, WalletHub named Iowa as the state with the lowest cost of housing in the nation, for the second year in a row. Combined with growing population, this tells a story a shifting demographic seeking opportunity—without the burden of drastically high cost of living.
Recognizing opportunity
Multifamily real estate in Iowa isn’t without its challenges. For example, a report published earlier in August highlights the ups and downs in Des Moines. The city saw records multifamily sales in 2021 and 2022, topping over $400 million in one year. But those numbers dipped to just $189 million in 2023.
Sales for the first half of 2024 are much more optimistic, recording $216 million in just the first six months. We see this as a stabilizing market, still poised to do impressive numbers. And with over 2,500 units planned throughout the city, developers surely agree.
Still, many of these units are more than two years away from being ready to lease. This is where Archstone’s value-add approach comes in, skirting many issues that new construction faces.
For years, various Iowan groups have raised the question of whether current housing supply can meet growing population demands. It goes without saying that ownership remains prohibitive for many in Iowa as it does across the country. And even with planned construction, cost to build a multifamily unit still remains high, many due to labor costs.
By focusing on a value-add approach to existing properties, we can meet market demand faster. In Urbandale, we were able to perform light renovations on vacant units in a recently acquired property. Our first unit was leased within a week of ownership. And within 30-days, we leased both of the previously vacant units, having only spent about 50% of our per-unit renovation budget.
In the August report, it’s noted that average rent in Des Moines has risen 1.8%, year-over-year. Much of our value-add approach is bringing units in line with renter demands, allowing us to raise rent prices to meet this upward trend.
And our vertical structure allows us to take a more cost-effective approach to our tackling our most ambitious projects. Through direct oversight, we’re more effectively managing costs and have better control over project timelines.
For example, thanks to the efforts of Archstone Construction, a 96-unit property acquired in 2022 was completely renovated and fully stabilized within 12 months of ownership. Having met our conservative valuation estimates, we intend to hold this unit for the long term, recognizing it as an asset in our portfolio.
These are opportunities we at Archstone invite you to be a part of. You can start by learning more at our Investing page.
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