Multifamily investors are looking anew at underserved midsize markets in the Willamette Valley.

In Salem and Corvallis, in particular, strong rent growth, low vacancy rates and growing populations are driving sales of multifamily properties and some sizable new development projects.

It’s a natural outgrowth of the long economic expansion, said Greg Frick, co-founder and partner of Portland brokerage HFO Investment Real Estate. Portland and Eugene saw waves of multifamily investment in recent years. Now, it’s smaller cities’ turn to attract capital.

“Investment dollars are really trying to get down there,” said Frick, who added that he frequently hears from investors interested in the mid-Willamette Valley.” You’re just seeing capital looking for investments and having to expand their horizons.”

Two major multifamily projects are under construction in Corvallis, where Oregon State University has driven growth. Enrollment at OSU reached 30,986 in fall 2018, up from 20,320 students a decade earlier.

Gilbane Development, based in Rhode Island, is building a 228-unit multifamily complex called Sierra next to the campus. The project is in a mixed-use industrial zone, and includes small storage structures to satisfy zoning requirements. The site, known as Washington Yards, was home to a feed store and a fruit company.

“They had to have a minimum square footage of industrial use, which they satisfied with those (storage units),” said Jared Voice, a senior planner with the city of Corvallis.

Construction of Sierra began recently.

Gilbane Development Director Andrew Ang said he was not authorized to speak on behalf of the company.

The other large project under construction in Corvallis is Witham Oaks from Corvue Holdings, a Chicago-based developer. The 292-unit complex is also student-focused; it’s scheduled to open in the fall, Voice said. Townhomes would follow in a second phase.

Otak Inc. of Portland designed the Witham Oaks master plan and also provided project management, civil engineering and landscape architecture services. The public improvements have been completed, and construction of the residential buildings is under way.

“It’s really going up quick,” said Brian Fleener, Otak’s director of architecture.

Witham Oaks comprises 29 buildings. Units have four bedrooms each. Every bedroom has its own bathroom, but the four units share a kitchen and living room.

Corvue took over the development from Campus Crest after buying several of the latter company’s properties.

Corvue did not respond to messages seeking comment.

A proposal from a local group to build a 125-unit multifamily development in the Timberhill area of Northwest Corvallis has not moved forward.

Deals in Corvallis typically show strong occupancy rates and rent growth, but survey data on the city’s multifamily market is scarce, Frick said.

Corvallis has historically had a high barrier of entry for new construction, with annexations requiring voters’ approval since 1977, according to the Corvallis Gazette-Times. A state law limiting cities’ ability to vote on annexations was challenged by Corvallis and Philomath, and the Oregon Court of Appeals is expected to issue a ruling in the case in coming weeks.

In Salem, vacancy rates have hovered near 4 percent with 4 percent annual rent growth, according to Multifamily NW‘s fall 2018 report. The trade group for landlords will release its spring 2019 report on Monday.

Prices show some appetite for new multifamily product in Salem. A newly built 56-unit apartment building in Salem sold for $166,071 per unit last year. On average, Salem multifamily buildings sold for $95,426 per unit.

More supply is coming. Koz Development of Snohomish, Washington, plans to build a 146-unit multifamily project at 260 State St., a vacant lot in downtown Salem. The building will have small, affordable rental units targeted at 20-somethings.

The project is in the late stages of development, and the team is on track to break ground in late May or early June, said Cathy Reines, Koz’s president and CEO.

The project is backed by local capital investors in Salem, Reines said.

Koz had initially considered a small grocery store as a possible use for the building’s ground-floor retail space, but the developers are reconsidering that concept, Reines said. The average age of tenants in Koz buildings is 26.

“As we’ve talked to younger residents, they’re ordering their groceries online and having them delivered,” Reines said. “We’re starting to challenge ourselves whether a market makes sense given who we believe the resident will be.”

Investors have taken notice of signs of life in downtown Salem, including projects to revitalize historic buildings and the pending purchase of the former Nordstrom building. The department store closed in April 2018.

“It just seems to be more vibrant than it has been historically,” Frick said of Salem. “And I think you’re seeing that across the board with some of these tertiary markets.”

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Population growth is affecting a lot of Portland, but it’s particularly noticeable in the area around the junction of Northeast Sandy Boulevard and Burnside Street. There, some mixed-use and residential projects have finished in recent years, and crews have begun constructing others.

One of the less ostentatious projects is tucked away at the corner of Southeast 13th Avenue and Ankeny Street. There, Koz Development of Snohomish, Washington, is developing a micro-apartment project. Koz on 13th will offer 87 units over four stories. Apartments will either be studios or one-bedroom units, ranging from 232 to 462 square feet. Monthly rents will start at $1,000.

“We have an occupied roof deck area, so we’ll have pavers up there,” Seabold Construction superintendent Chris Locke said, “and we’re plumbing it for gas so we can have a couple of barbecues and a fireplace. The view actually overlooks downtown Portland there, so it’s a pretty good view.”

Only five ground-level parking spaces will be constructed for motor vehicles; however, 92 bicycle parking spaces will be spread over the four stories.

Currently, crews are working on interior drywall, exterior wood siding, and mechanical, electrical and plumbing, as well as finish carpentry. Seabold is looking to complete construction by mid-April following delays caused by discovery of an underground cistern and the need to replumb certain areas of the building.

The building, designed by Koz Development’s in-house architecture team, will be rectangular to fit the former surface parking lot. Some of the units on the building’s north side, facing Ankeny Street, will have outdoor patios, Locke said.

This is just one of several Koz Development projects in Portland that are finished, under construction, or in planning or design.

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More micro-housing developments are coming to Portland, and Beaverton-based Seabold Construction is busy building many of them.

Snohomish, Washington-based Koz Development relies on in-house architects to design all of its projects – many that offer micro-apartments – and then manages them after completion. The firm’s latest is Koz on SW Fourth Avenue, which will provide 108 units (64 studios and 46 lofts) above ground-floor retail space. Seabold Construction is serving as general contractor for this project and three others by Koz in Portland. And that is hardly the end of such activity.

“There are quite a few that haven’t formalized into drawings yet, but are in the works,” said Kevin Owens, Seabold’s director of field operations.

Koz on SW Fourth Avenue will have five stories of residential space over a ground floor intended to serve restaurants, as well as 25 below-grade parking spaces. The wedge-shaped property is at 2211 S.W. Fourth Ave, slightly south of the Portland State University campus.

“It’s a great location,” Seabold Construction Superintendent Tom Turner said. “Right now we’re into full rough-in, and on the interior we’re going to be sheeting the fifth floor and we’ll have the roof on in about three more weeks. It’s a beautiful location. It’s going to be very probably affordable for the kids, if it is all students.”

The unique property overlooks both Interstate 405 and the West Hills.

“I wish we were up to the fifth floor because there’s the greatest view of Mount Hood you could ever see,” Turner said on a tour of the site. “The views here are going to be incredible. This is just the coolest setting you could have.”

Recently, a host of subcontractors and their crews were working on-site. They included Advanced Pro Builders, Atlas Plumbing Contractors, Madlyn Metal Fab, Rose City Electric, Jacobs Heating & Air Conditioning and Triad Fire Protection.

The building is expected to be substantially completed by August, Owens said. The project team is hoping it will open before the start of the 2019-20 school year.

For now, rough-in work will continue into the spring as interior contractors start to arrive on-site.

“This is my first week of rough in, and all my MEPs are here and I’m straightening everything out and getting organized,” Turner said.

Koz Development’s first project in Portland, Koz on Yamhill, opened last year at 2165 S.W. Yamhill St., in Goose Hollow. It has 26 lofts and four studios – all with 350 square feet or less. Seabold is now building three similar projects: Derby Slabtown, with 127 apartments and one live-work unit, at 1075 N.W. 16th Ave.; Koz on NW 16th, with 80 units, at 1111 N.W. 16th Ave.; and Koz on SE 13th, with 87 units, at 123 S.E. 13th Ave.

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As many developers have held off building apartments in the face of new city regulations and rising costs, Koz Development has plunged in with a series of high-density, low-priced housing projects.

The Snohomish, Washington-based developer has six separate projects either under construction or in development in Portland; they total approximately 533 multifamily units.

In the process, Koz is providing affordable housing through Portland’s inclusionary housing rules and an older program that inclusionary housing replaced. Koz is developing approximately 80 affordable units while many other developers are building projects with none.

Koz’s projects are unusual. They include only micro-units, some smaller than 500 square feet. Many of the developments have no parking for residents, while others include a modest number of parking spaces.

Koz performs in-house architecture, seeking to replicate its model as cheaply as possible. The developer has stuck with one general contractor for its Portland projects, Seabold Construction. For some projects, Koz doesn’t even use a general contractor.

Koz – the name is short for “cozy” – has targeted Portland for its fast-growing population and employment base. The developer locates projects in Portland’s urban core, typically in dense areas close to public transit.

Of the six projects, two were conceived under Portland’s now-defunct MULTE program, which was replaced by inclusionary housing. Two newer apartment projects are in development according to the city’s inclusionary housing guidelines. The other two planned projects are condos, and therefore don’t include affordable rental units.

As the developments have proceeded, Koz has had to adjust to the city’s shifting rules for providing affordable housing. MULTE was a better fit, because the 10-year affordability period matched a 10-year property tax exemption, Koz CEO Cathy Reines said.

“From a financial perspective, (MULTE) is a program that is easier to justify,” she said. “The inclusionary housing program obviously is a little tougher. That reduction in rent goes out well beyond any kind of tax benefit you might get on the project itself.”

The inclusionary housing program’s fee-in-lieu option, which gives developers the ability to pay their way out of building affordable housing, isn’t feasible, Reines said.

“For our projects, paying the fee is not an option,” she said. “It’s cost-prohibitive.”

Koz’s business model is likely to appeal to 20-somethings in search of cheaper rents. As a business proposition, Koz makes less rent on each unit than more spacious apartments, but makes up for it with a higher price per square foot.

“Chunk rent is much lower than standard units,” said Brian Wilson, development partner at multifamily developer Mainland Northwest. “In terms of dollars per square foot on the property, and getting it financed and leveraged, it’s really good.”

Some neighborhood groups have raised objections to Koz’s projects on the grounds that their tenants are likely to use scarce street parking. Koz executives say many of their tenants are interested in urban living and don’t have cars.

Removing parking from the equation helps developers keep costs down, Wilson said.

“It’s one of the most expensive parts of the project, and you don’t get much return on it,” he said.

Koz is also considering building in downtown Salem, which has recently seen an uptick in development.

“It’s a great market,” said Joshua Scott, co-owner of Koz and leader of its design and construction teams. “We’re just looking for the right opportunity.”

Here’s a look at Koz’s projects in Portland:

• The furthest along is at 2165 S.W. Yamhill St., just west of Providence Park and south of Burnside Street. The project is relatively small at 30 units; six will be rented at 60 percent of the area median income. The building is currently being framed. Reines said the building should earn its certificate of occupancy in early 2018.

The units average about 290 square feet each, with 215 square feet on the ground floor and an additional 75-square-foot bedroom loft accessed by a staircase.

• Koz broke ground in early October at 1075 N.W. 16th Ave. in the emerging Slabtown neighborhood. The project will have 128 apartments in studio, one-bedroom and two-bedroom configurations.

Twenty percent of the units will be affordable, pegged to 60 percent of area median income. The project is immediately west of the Interstate 405 overpass.

• Koz plans its first Portland condominium project at 1111 N.W. 16th St. The building will have 65 condominiums – all studios. The units will be partially furnished with built-in Murphy beds. The condos will average 425 square feet, with “higher-end finishes” and air conditioning. The project is “truly intended to be an affordable, upscale condominium project there in the Northwest District.”

The condominium project will have some parking at grade level, but the number of spaces is to be determined, Reines said.

• Koz plans to break ground by the end of October at Southeast 13th Avenue and Ankeny Street, in the Buckman neighborhood. The project will be Koz’s first that falls under inclusionary zoning rules. Approximately 15 percent of the 87 units will be offered at rates affordable to 80 percent of the area median income. The project will have a mix of studio and one-bedroom units.
• A 108-unit apartment project is awaiting permits so that construction can begin at Southwest Fourth Avenue and Grant Street, near Portland State University. Twenty percent of the units will be affordable, pegged to 60 percent of area median income. Koz hopes to break ground in mid-November.
• Koz plans a condominium project at 4708 N.E. Sandy Blvd. The mixed-use building will have 114 residential units over ground-floor commercial space. The project replaces an Umpqua Bank branch.

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The Portland Design Commission on Friday got its first look at a proposal for an 11-story, mixed-use complex at 1500 S.W. Taylor St., and agreed with city staffers’ recommendation to send the project back for revisions.

SERA Architects is working on the project with three development groups – Molasky Group, Trinity 3 Investment and Langley Investment Properties.

The proposal calls for 146 apartment units, 80 vehicle parking spaces, 219 bike parking spaces and two loading spaces. Also, ground-floor retail space is planned.

The primary concern for both design commissioners and city staffers is that the building would lack activation and pedestrian use at the ground level. Kurt Schultz, a SERA Architects principal, said that plans call for a fitness center that would be open to public membership. The project team’s hope, he said, is that the fitness center and a 10-foot setback from the property line to add sidewalk space would help increase activity.

“We spent a lot of time (focusing) on the first floor and what it adds to the neighborhood,” Schultz said.

The idea of including a fitness center is “very reasonable,” commissioner Tad Savinar said. He also complimented the plan to include larger sidewalks.

Commissioner Julie Livingston praised the designers’ decision to create a canopy covering the sidewalk, but was less certain about the placement of balconies primarily on the corners of the building.

“The balcony placement was primarily based on the unit types that wanted them,” Schultz said.

Livingston questioned the need of the balconies from an architectural standpoint.

“I get that from a program perspective, but I don’t think it’s helping the architecture,” she said. “I think there is a better way to make the decision architecturally about where these balconies live.”

Ground-floor entryways also became a target. The building’s main entry is planned near the intersection of Southwest 15th Avenue and Taylor Street, and accentuated with a glass canopy and floor-to-ceiling glazing. But design commissioners questioned its size and whether it would provide convenient access to pedestrians.

They added that pedestrians wouldn’t have enough places to stop, view the surroundings, socialize and rest.

Design commissioners spent a large amount of time examining the location of the ground-level garage door. They agreed with staffers that a better solution is needed to address glare from vehicles’ headlights.

Though the Design Commission took issue with some aspects, it generally supported the concept proposed by the development team. The project will be refined and brought back before the commission on Feb. 9.

Also on Friday:

Mixed-use proposal approved

The Design Commission followed city staffers’ recommendation and approved plans for a seven-story, mixed-use building at 1015 and 1033-1039 N.W. 16th Ave. The building will include 128 studio-size residential units and ground-floor retail space. The total floor area ratio (FAR) will be 4:9:1.

No parking is planned by the project’s developer, Koz Development, based in Snohomish, Washington.

The only condition the commission added was to lengthen fiber cement panels in horizontal bands between floors so that fewer breaks would occur.

The proposed building was approved by a vote of 4 to 1, with two commissioners abstaining. Final findings will be published in about two weeks.

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As Portland moves forward with ridding city code of parking minimums, a Seattle-area firm is heavily investing in a series of urban studio apartment buildings with no parking.

The developer’s plans are not dependent on city officials’ decision, enacted in a Nov. 23 City Council vote, to do away with requiring developers to include parking in multifamily projects of more than 30 units. The changes, part of comprehensive plan amendments, will take effect in January 2018.

But the project illustrates the type that Portland is poised to see grow as millennials demand apartment units in close-in neighborhoods and developers find they can build them with little or no parking.

The development model is likely to exacerbate existing conflicts between developers and residents who fear greater traffic and a deficit of street parking in established neighborhoods.

Koz Development, based in Snohomish, Washington, recently asked for planning assistance with a proposal for an apartment building with 95 studio units and no parking at 1111 N.W. 16th Ave., in the Northwest District near Interstate 405.

Koz is also developing across the street, at 1015-1039 N.W. 16th Ave., a project that calls for 128 units and no parking. A design review hearing was held Dec. 1, and the developer hopes to obtain a building permit soon.

Residents are deeply concerned that Koz will plop down 223 units in an established neighborhood with no additional parking and little city investment in infrastructure.

“I know the city’s wishful thinking is that they think once the traffic gets bad enough, everyone’s going to get around on mass transit,” said Roger Vrilakas, a resident who serves on the Northwest District Association planning committee. “But they don’t have any plans to make a world-class mass transit system.”

The many-units, no-parking model is most profitable for both the city and the developer, Vrilakas said.

“The additional increase in services to the Northwest (District) is nil, so (city officials) get to rake it in and the developer gets to rake it in, but the rest of us get to live in the type of cities we left in the ’80s,” he said.

Vrilakas emphasized he wasn’t speaking for the planning committee.

Koz Development works to find urban sites where the model makes sense, chief executive Cathy Reines said.

“We for the most part build our projects with little or limited parking while making sure we’re located near mass transit,” she said.

Koz was attracted to Portland by strong economic indicators and a growing rental-friendly population, Reines said.

“Portland has a great millennial demographic, and that’s growing,” she said.

Brian Worley, a spokesman for Mayor Charlie Hales, who backed eliminating parking minimums, said Hales was not available for an interview.

Increasingly, developers are building studio apartments, which offer the highest returns per square foot. That’s beginning to make a dent in the need for more affordably priced rental housing, but it’s also causing parking congestion across Portland and leading tenant advocates to point to a lack of larger units.

While some residents of Koz’s developments will surely have cars, the developer seeks to appeal to non-drivers, said Joshua Scott, a vice president with the firm.

“We are certainly looking for residents that have limited or no interest in automobiles for transportation,” he said.

Most of Koz’s units are studios, but some units at the 128-unit development in Northwest Portland will offer two bedrooms, Scott said.

The apartments will be distinct from “micro-units,” which often share bathrooms and kitchens, Scott said.

In Seattle – where development often serves as a harbinger of what’s to come in Portland – apartment units have become ever smaller. The Seattle Times recently spotlighted an ad for a 130-square-foot “studio” apartment that includes a sink and a toilet open to the rest of the unit. One Reddit user referred to the apartment as a “prison cell with large windows.”

That is not Koz Development’s model, Scott said. Each Koz unit will have its own cooking facilities, bathroom and loft used for sleeping or storage.

“We do fully self-contained, small studio apartments,” he said.

The interiors themselves are high quality, with durable finishes and a modern aesthetic, Scott said. Also, ample bike parking will be provided.

The model is intended for young people who want to live in the city and not stay holed up in their homes.

“We don’t have a lot of other amenities because we really encourage residents to live in their communities,” he said.

In addition to the Northwest Portland projects, Koz is at work elsewhere in the city. Scott expects to break ground within a month on a 30-unit project, with no parking, at 2161 S.W. Yamhill St. in Goose Hollow.

Then Koz will tackle a 114-unit project at 2211 S.W. Fourth Ave. near Portland State University, with 25 parking spaces located in a ground-level garage. Finally, the developer plans an approximately 80-unit project at 1299 S.E. Ankeny St. with approximately 15 parking spaces.

Koz designs its projects with in-house architects. Seabold Construction is under contract for the Goose Hollow project, and general contractors have not been selected yet for the subsequent projects.

Koz found success with several projects in the Seattle area, including in the University District, before replicating the model in Portland and Tacoma, Washington. Koz is looking at additional markets, Reines said.

Many new, large projects offer parking, although parking ratios have declined in some cases to 0.7 parking spots per unit or less.

Investors continue to support parking, believing many prospective tenants still demand space for their cars.

“To create even a small amount of parking, just five or 10 stalls, is everyone doing their part,” said Noel Johnson, a principal at developer Cairn Pacific.

Building no parking at all can lead to problems, Johnson said.

“It creates a hotspot in the neighborhood,” he said. “It creates frustration.”

Koz’s Northwest Portland projects are near several bars and eateries. Scott said the buildings will provide a noise buffer from Interstate 405.

Northwest Portland neighborhoods have created parking districts to give residents the ability to find street parking. Koz’s projects near Northwest 16th Avenue and Marshall Street are in a parking district known as Zone K. Nearby, in Zone M, residents who serve on a parking committee have discussed capping the number of parking permits issued to residents. Already, there are twice as many passes as spaces, which is possible because not everyone parks in the neighborhood at the same time, said Karen Karlsson, who serves on the Northwest Portland parking stakeholder advisory committee.

Zone K’s parking regulations are less robust, Karlsson said.

“That number of units in Zone K is a disaster,” she said.

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