Apartment Appraisals
Valuation
Apartment/multi-family properties are income-producing, with revenue being mainly generated by residential tenants paying a monthly rental rate. An apartment building can also have additional revenue streams, which an appraiser would consider in the appraisal, if the revenue is part of the real estate. For example, revenue from parking, laundry income, pet fees, and late fees are generally considered part of the real estate, and an appraise would likely consider these additional revenue streams in the appraisal. In an apartment appraisal, it is crucial for the appraiser to identify any additional revenue stream(s) that the apartment community is generating, and identifying whether or not it is tied to the real estate.
The market rent for a particular apartment property will be determined by its location, building amenities, average unit size, number of bedrooms, construction quality, and age, among other things. The market rent can be determined for the specific unit type(s) in a building with multiple floor plans, as well as for the parking (if the apartment charges additional rent for parking).
In determining the value of an apartment building, the appraiser would consider applying all three approaches to value (summarized above). In the income approach, the appraiser would determine an appropriate capitalization rate to apply to the net operating income (NOI) of the property. Cap rates for apartments can vary in Wisconsin, depending on the property’s class, location, age, condition, and other factors. Recently, some Class A apartment communities have transferred at around a 5.5% cap rate. In the sales comparison approach, an apartment community can be valued on a price-per-unit basis, or a price-per-rentable square foot basis. Additionally, gross income multipliers (GRMs) can serve as a supportive cross-check to value.
Types of Apartments
Affordable Apartments
HUD defines affordable housing as "housing for which the occupant pays no more than 30 percent of his or her income for gross housing costs, including utilities."
LIHTC Apartments
LIHTC stands for "low-income housing tax credit." The LIHTC or Housing Tax Credit (HTC) program was created in 1986 to encourage private investment in the development and rehabilitation of rental housing for low- to moderate-income families, seniors, and persons with special needs. The HTC is a dollar-for-dollar reduction of federal income taxes owed by owners/investors in qualified projects for tenants whose incomes are at or below 60% of County Median Income (CMI).
Garden-Style Apartments
Garden apartments can generally be described as one-to-three story walk-up apartment buildings with repeated building and floor plans in the community. Garden apartments generally have surface parking and are customarily located in suburban and rural-urban fringe areas.
High-Rise Apartments
Although the high-rise standard varies based on market/location, a high-rise apartments can generally be described as apartment buildings over eight stories tall and that contain a passenger elevator. High-rise apartments are typically constructed with a steel frame or a reinforced concrete frame.
Market-Rate Apartments
Market-rate apartments are apartment units with no restrictions on the amount of rent that can be charged for an apartment unit. The rental rate for a market-rate apartment is determined by the apartment's appeal, amenities, competition, economy and other supply and demand forces.
Mid-Rise Apartments
Although the mid-rise standard varies based on market area/location, a mid-rise apartment can generally be described as an apartment building between four to eight stories. In the central business districts of major cities, the mid-rise standard may be buildings that extend up to twenty-five stories (SIOR).
Mixed-Income Apartments
A mixed-income apartment is an apartment building that contains some apartment units with rental restrictions. For example, an apartment community may contain a total of 50 units, 25 of which could be rent/income-restricted to 50% of area median income (AMI) and the other 25 units would be rent/income-restricted to 60% of the AMI. In another example, an apartment building could have a mix of affordable (rent/income-restricted) units (as a percentage of AMI), and market-rate apartment units (with no rent or income restrictions).
Mixed-Use Apartments
A mixed-use apartment is an apartment building with one or more additional use(s) in an area or single building, such as an attached parking ramp, office space, retail, or co-working space. The Moderne in Milwaukee is an example of a mixed-use apartment, since the lower lower contains a restaurant, the "middle" portion contains apartments, and the upper three floors contain condominiums.
Public Housing Apartments
The Appraisal Institute defines public housing as "rental projects that are owned and managed by state or local government agencies and made available to low- and middle-income tenants at reduced rates."
Senior Apartments
Senior apartments are apartment communities designed specifically for seniors (with age-restrictions such as 55 or better). Oftentimes, the apartment community offers tenants additional services such as shuttle rides and social events.
Urban Infill Apartments
Urban infill apartments are apartments in an urban area that are built on previously-developed land. An infill development contrasts from a "greenfield development," which refers to a real estate development on land that was not previously used for a residential, commercial or industrial purpose. Many new apartment developments in city cores are considered urban infill. An example of a proposed urban infill apartment building in the City of Milwaukee is The Couture.
Milwaukee Apartment Market
The Milwaukee Metro contains about 152,375 apartment units. Average apartment rents in the metro area have been increasing over the past several quarters. A recent apartment survey conducted indicates that average rents in the Milwaukee Metro Area (which includes Milwaukee County suburbs, and Racine and Waukesha Counties) increased 3.2% from an average of $1,131 per month to $1,168 per month from Q2 2018 to Q2 2019. Apartment vacancy in the metro area increased 50 basis points over the same period, from 96.0% to 96.5%.
Apartments Under Construction
- The Couture - The development of this apartment building was a multi-year process. Construction began in late 2022. The developer is Barrett Visionary Development.
Recently-Completed Apartments
- Ascent - a 265-unit, 25-story apartment tower located in downtown Milwaukee. It is reported to be the largest timber building in western hemisphere. Completion of the building was in late 2022/early 2023.
- The Yards - a 86-unit apartment building with a mix of studios, one-bedrooms, and two-bedrooms. The developer was Linen Street Partners and construction was completed in 2020
- The Brewery Lofts - a renovation of a former Pabst malt house, is a proposed 118-unit, seven-story apartment building. The building is to contain about 59 1-bed/1-bath untis, and 59 2-bed/1-bath units. The developer was Zilber Property Group.
Proposed Milwaukee Apartments
- Convent Hill South (proposed by the Housing Authority of the City of Milwaukee, or HACM).
Apartment Sales
2023 Sales
- The Cudahy Tower Apartments (located at 925 E. Wells St) sold in February 2023. The 14-story apartment community was built in 1928 and 1928 and was sold for over $16 million.
2018 Sales
- River House Apartments (located on the Milwaukee River) sold on December 2018. The 243-unit apartment community was built in 2017, and was purchased by a Seattle-based investment firm.
- Avenir Apartments (located in the Park East neighborhood of Milwaukee) sold on November 2018. The 104-unit apartment building was built in 2015 and was purchased by a Seattle-based investment firm.
Milwaukee Metro Senior Apartment Market
The demographics are clear: Baby Boomers are reaching retirement age in droves (about 10,000 reach 65 years old every day). As a result, demand for senior housing has been increasing in recent times and Southeastern Wisconsin developers are trying to keep up with demand. The following are a sample of recently-constructed, under-construction, and proposed senior housing developments throughout Southeastern Wisconsin.
- Presbyterian Homes Wisconsin Inc. Located at N55 W36909 Lisbon Road, Oconomowoc, this is a $50 million, 158-unit senior campus currently under construction in the City of Oconomowoc. The development will feature 120 senior apartments, 20 assisted living, and 18 memory care apartments. Construction is expected to be completed in fall 2019.
- River Parkway Senior Apartments and Townhomes. Located at 6400 to 6442 River Parkway, Wauwatosa, WI, this project is a proposed 136-unit senior community. The proposal consists of a 118-unit senior apartment building and 18 two-story, three-bedroom townhome units.
- New Perspective Senior Living - Franklin recently broke ground on a proposed 180,000+ square foot senior living community located at 7220 Ballpark Drive South, Franklin, WI. The project is proposed to contain a mix of independent and assisted living apartments, along with a designated memory care area.
- New Perspective Senior Living - Waukesha is an approved $30 million, 128-unit senior development located on the southeast corner of East Broadway and Les Paul Parkway, in the City of Waukesha. The 173,000+ square-foot facility is expected to be completed in summer 2020, and will contain 94 independent living and assisted living units, as well as 34 memory care apartments.
- Lakewood Memory Care Brookfield. Located at 4065 N Calhoun Rd, Brookfield, WI, this is a recently-constructed 34,500+ square foot, 66+-room facility for elderly individuals in need of assistance with memory care.
- Heartis North Shore is a 105+ unit, 97,000+ square foot two-story senior apartment facility that is nearly completed and is expected to start welcoming residents soon. The building features 71 assisted living units and 34 memory care units, and contains three courtyards.
- Heartis Village Brookfield is a 104+-unit senior-living community located at 16100 West Greenfield Avenue, Brookfield, WI. This facility is nearly completed and is expected to open in fall 2019.