In a sign that student-housing towers near campus are having an impact on similar outlying complexes, one of the earliest student-housing projects on the city’s west side is being converted into traditional apartments.
Developer Holualoa bought Gateway at ÃÛèÖÖ±²¥, a 188-unit complex at 2800 W. Broadway built in 2005, for $12.9 million and plans to refurbish it into 273 units of conventional apartments.
Churchill Commercial Capital arranged a $19.3 million loan for the renovation.
“We think it’s a great location,†said Lani Baker, vice president of finance for Holualoa. “We’ll still have students there because of the proximity to Pima College west campus, but also retirees and snowbirds because of the great views.â€
The complex currently has one-, two- and four- bedroom units, all with equal number of bathrooms.
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The renovation will entail turning the four-bedroom units into one- and two-bedroom apartments by installing a demising wall so one unit will have two bedrooms, two bathrooms and a living and kitchen area.
The other unit will become a one-bedroom, one-bathroom unit and the plumbing for the second bathroom will be used to add a kitchen, Baker said.
“We won’t need to do structural work or add plumbing fixtures, we’re just changing their function,†she said.
In the common area of the complex, the business center with computer stations will become additional clubhouse space and a kitchen for resident events, Baker said.
Leases for existing tenants who rent by the room will be honored but when the lease comes up for renewal, the renter will have to sign a lease for the unit, not just the bedroom.
Baker said the complete renovation is expected to be done by mid-2021 and that rental rates will be determined at that time.
Holualoa does not have student housing in its portfolio of residential, office, retail, hotel and industrial properties and believed Gateway would do better as a traditional apartment complex.
‘Stress in that marketplace just beginning’
The proliferation of student housing around campus impacted Gateway and made additional amenities, such as a shuttle bus, necessary to compete, Baker said.
“Once those towers started going up, occupancy significantly decreased,†she said. “Profitability was impacted.â€
Mike Chapman, senior vice president with NAI Horizon and a student-housing expert, said Gateway is the first major property here to convert from student housing to conventional apartments.
“Stress in that marketplace is just beginning,†he said of the complexes that are off campus.
“The off-campus properties have the advantage of lower densities and abundant field parking. Construction cost for this product type were lower, allowing for more affordable rents,†he said. “They have faced stiff competition from the new campus-adjacent towers, have adapted and are mostly well occupied and succeeding. â€
In 2012, the city of ÃÛèÖÖ±²¥ created a zoning overlay district to create density along the streetcar line, which permitted developments of up to 14 stories. Previously, the limit was four stories.
Developers quickly jumped in and six towers have been built right on campus, near Park Avenue and Speedway; one downtown and one just south of campus on Broadway and Park Avenue. Two more towers — one on the corner of Park Avenue and Speedway and one on Park Avenue, to the south at the Chase Bank site — are under development.
Saturation predictions yet to come true
Predictions of saturation date back to 2013 when industry experts believed every new tower announced would be the last, but occupancy rates and high rents keep investors interested.
When saturation will occur remains a mystery.
“If I could tell you for sure,†Chapman quipped, “I’d be sitting somewhere counting money instead of being on the phone.â€
With the removal of Gateway, there are currently 24 purpose-built student-housing complexes in the ÃÛèÖÖ±²¥ market that collectively bring in more than $7.7 million a month in rent — the lion’s share to the towers around the university.
The average student-housing complex charges $1.99 per square foot for rent, versus $1.09 per square foot for conventional rent.
At the towers near campus, some developments command almost $4 per square foot in rent.
“We may run out of zoned development sites,†Chapman said, “before we outpace demand.â€
