CBRE REPORT: AIRBNB, VRBO RENTALS WILL IMPACT HOTEL MARKETS IN 2020

By Dan Rafter

Hotel owners have reason to worry about the continued growth of services such as AirBNB and VRBO. Short-term vacation rentals will remain popular in 2020, with the trend further expanding in suburban, rural and resort markets, according to a new report from CBRE.

And that could mean more competition for hotel operators this year.

CBRE predicts that the short-term rental industry will expand to about 650,000 actively rented units in the United States this year. That is equal to 12.2 percent of the U.S. hotel room supply, according to CBRE.

Short-term rentals typically are houses, condominium units and unoccupied apartments that are rented out for short vacation stays on platforms such as AirBNB or VRBO. These short-term rentals are direct competitors to hotels, and can have a significant impact on the strength of the hospitality market.

As CBRE says, when there is a high penetration of short-term rentals in a market, it limits the ability of hotels in that same market to raise their rates.

That’s because more short-term rentals hit the market during periods of high demand and low vacancies, the same periods in which hotels usually boost their rates. This, of course, directly impacts a hotel’s profits. And, as CBRE says, a high concentration of short-term rentals can dissuade developers from building hotels in certain markets.

CBRE officials say that the growth of short-term rentals, then, is something that hotel operators need to watch closely.

“The industry used to essentially

ignore the impact of short-term rentals when assessing a hotel’s value, but not anymore,” said Tommy Crozier, the executive vice president leading CBRE’s National Hotel Advisory Practice. “It’s clear that these rentals can have a direct and meaningful impact on hotel performance and asset values. The impact might be more pronounced in some submarkets than in others, contingent on conditions, but it is a legitimate impact nonetheless.”

According to CBRE, a market reaches its saturation point when its shortterm rental supply equals 10 percent to

20 percent of its supply of hotel rooms. Of the 30 largest hotel markets in the United States, 14 have short-term rental ratios of 10 percent or more, CBRE said.

In the Midwest, Minneapolis is a good example of how popular shortterm rentals have become. CBRE said that through 2019, Minneapolis saw its supply of short-term rentals grow to 2,320 out of 44,432 hotel-room units. That brings its short-term rental ratio to 5.2 percent, an increase of just less than 0.5 percent when compared to a year earlier.

Minneapolis’ short-term rental ratio is the 24th highest in the country, CBRE reported.

“While Minneapolis’ true short-term rental ranking is low compared to other larger cities, it did see positive growth with a small uptick in its supply unlike many of the markets currently ranked ahead,” said Mark VanStekelenburg, managing director of CBRE Hotels. “Its short-term rental penetration is quite low at 5.2 percent, offering substantial opportunity to expand its shortterm rental market in the future.”

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ume, which is up significantly from coming out of the recession where we were a $300 million to $500 million market,” Talberg notes. “We will be around that $2 billion mark as well in 2019. But I do expect that 2020 has the potential to be a record year and surpass the $2 billion.”

2019 was another active year

It has been another busy year in the multifamily sector, says Keith Collins, executive vice president in CBRE’s Minneapolis office, specializing in the sale of apartment properties.

CBRE tracked around $1.9 billion in Twin Cities apartment sales in 2018. Collins anticipates 2019 will be closer to $1.6 to $1.7 billion.

While the market is still very strong, investment sales have dipped slightly. “I don’t think it’s a lack of capital,” Collins says. “We still have more and more capital looking to get into Minneapolis.”

It’s more due to a lack of willing sellers and also much of the older, valueadd product has sold and much has been rehabbed, he notes.

“There’s less and less of those opportunities, and as far as the merchant builds, how many true merchant builders do we have out there?” Collins asks.

He says the market has some, but it’s not like there’s an abundance of the Opuses and Ryans of the world that are selling.

Collins also says the market hasn’t likely seen enough rent growth in the urban areas to justify owners wanting to sell right away. “They haven’t seen enough appreciation, so I think that’s halting a little of the sales volume,” he notes. “All in all, it’s good. Cap rates are still strong. I think our market is very well-received.” What investors are active?

Collins says the market will likely have 18 to 20 sales of 100 units-plus in 2019.

“Of that, pretty much all but two are out-of-town buyers,” he notes. “People want to get into Minneapolis. It used to be a little under the radar. It’s not anymore.”

He says people are well aware of the Twin Cities including all of the Fortune 500 companies and the diverse base of employment.

“We’re certainly attracting the institutions -- whether it’s pension fund advisors or life insurance companies,” Collins says.

There are also many private groups seeking assets in the Twin Cities. Whether it’s a regional sponsor with an institutional partner or core funds, coreplus funds, value-add funds, they’ve been very active acquiring more of the older product.

In addition, there’s high-net-worth private capital coming in from outside of the Twin Cities as well as 1031 activity and some public REIT activity. Market is in a ‘new paradigm’

Two or three years ago, everyone was asking what inning is the multifamily market in? Collins says.

“Now everyone just realizes that there’s a new paradigm where the market has been in extra innings and will continue to be,” he says, noting new apartment units delivered and those in the construction pipeline. There’s also a shift to more suburban development in areas that have been underserved with newer product.

“Do I see the market shutting down anytime soon?”Collins asks. “No. Is it peaking? One would certainly think that we can’t keep going at this rate, especially in the urban locations where there has been much more meaningful supply, and then just how deep is that market? If there’s one challenge, it’s you haven’t seen the dynamic rent growth in the urban locations that you’ve seen in the suburban locations.”

Collins says strong investor demand for apartment assets will continue and pricing has remained very strong across the spectrum.

“There’s going to be continued abundance of capital. That’s not going away,” he says. “The debt markets continue to be very creative. There’s always this concern about the agencies – Fannie Mae and Freddie Mac—cutting back, etc. But they seem to continue to get enough of their allotment to stay very active and relevant in our industry, and that has happened again. I think with the interest rates, the debt markets remain very attractive.”

He also points to the upcoming 2020 presidential election. Collins says there’s the “mindset that, ‘Hey, it’s a good opportunity to capitalize that,’ because there’s probably more uncertainty with the post-election next year. “Consensus from my colleagues throughout the country is it’s going to be a very strong and active on the capital side, for sure for the first half of the year,” Collins says.

Minneapolis' Timberland Partners acquires three apartment communities

Minneapolis-based Timberland Partners Investments acquired three new apartment properties through its newly created Timberland Partners Apartment Fund VII. TPAF VII will raise $100 million to acquire and manage quality multifamily rental properties in the Midwest and Southeast markets of the United States.

The first three deals created with the fund are consistent with Timberland’s strategy of investing in secondary and tertiary markets that are primed to produce cash flow and value increases in the short-term. The three properties include:

Meadowridge Apartments; St. Peter’s, Missouri.

Located 30 minutes northwest of downtown St. Louis, Meadowridge Apartments is a 180-unit community built in 2019. Timberland owns and manages 1,966 units in the St. Louis metro area with Meadowridge being its seventh local apartment acquisition.

Trails at Cahaba River, Birmingham, Alabama

Located 20 minutes southeast of downtown Birmingham, the Trails at Cahaba River is a 400-unit apartment community. Built in 1988, the property recently underwent a $6.6 million renovation of the clubhouse and 85 percent of the apartment units. Timberland Partners plans to invest an additional $2.5 million to renovate the remaining 15 percent of the apartments, as well as install a second, resort-style pool, a new dog park, firepits and outdoor grill spaces throughout the property. This is Timberland’s first community in Alabama.

Encore Memorial; Bixby, Oklahoma Located 15 miles south of downtown Tulsa, Encore Memorial is a 248-unit apartment community. Timberland Partners owns and manages 1,032 units in the Tulsa market.

Minneapolis’ Timberland Partners owns and manages a portfolio of more than 16,000 apartment units in 15 states.

My Place hotel expands to Minneapolis region

Following its fifth year in franchising, My Place Hotels are officially in half of the United States with its newest hotel opening in Minnesota this month. Located off of Highway 169 (Exit 112) at 3912 12th Avenue East in Shakopee, Minnesota, the four-story, 63-unit hotel was developed by Eller

Enterprises and is managed by True Hospitality, LLC.

My Place Hotel-Shakopee is located across the road from the iconic Canterbury Park and under five minutes away

from Valley Fair, making the hotel an ideal destination for travelers to the greater Minneapolis-St. Paul area.

This is the sixth My Place hotel for True Hospitality, LLC.

Stahl wraps $8 million school renovation in Minneapolis

Stahl has partnered with Minneapolis Public Schools Special School District #1 on the addition and renovation of the Marcy Open School in Minneapolis. The 44,000-square-foot facility was originally built in 1991 and serves 741 K-8 students.

The $8.5 million project included a new cafeteria and kitchen, relocation of the art and music spaces, modernizing learning environments and enhancing security.

Construction began in the spring of 2019 and was completed in November 2019, with the landscape and final exterior elements to be completed in August 2020.

Autism services provider opens location in Minnesota MOB

Caravel Autism Health is the newest tenant at Davis’ Plymouth Medical Building in Plymouth, Minnesota.

Caravel will join Fresenius Kidney Care in this newly renovated Class-A medical office building this spring.

Caravel Autism Health is an autism services provider offering diagnosis and treatment.

John Coleman, Frank Richie and John Marquardt of Transwestern represented Caravel in this transaction.

Women's clinic joins medical roster at Minnesota's CityPlace II

Adefris & Topping Women’s Specialists will join Shriners Healthcare for Children in the newest medical office development at Woodbury, Minnesota’s, CityPlace II this summer.

Adefris & Toppin will move from the Woodwinds Hospital Campus and take a long-term lease for 8,040 square feet at CitPlace II.

Brian Passeri of RG Commercial Realty Group represented Adefris & Toppin.

CityPlace is a mixed-use development in Woodbury, a suburb of Minneapolis. The development features an expanding medical hub including MNGI Digestive Health, Associated Eye Care, Midwest ENT, Tria Orthope

dics, Woodbury Dental Arts and Shriners Healthcare for Children.

Timberland Partners to build 218-unit apartment community near Minneapolis

Timberland Partners closed on the land and financing necessary to begin construction of Sundance at Settlers Ridge, an apartment community in Woodbury, Minnesota.

The $68 million, 218-unit project was designed by Kaas Wilson Architects and will be constructed by Frana Companies, both based in Minneapolis. Dougherty Mortgage LLC arranged a $53.5 million HUD-insured 221(d)(4) loan to finance the project. Sundance at Settlers Ridge is designed as a townhome-style apart-

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ment community, appealing to those desiring a neighborhood experience not available through traditional midrise apartment construction. As a toptier suburb, Woodbury is an ideal location due to its family-friendly reputation, highly recognized school district, continued growth, proximity to major area employers, and easy access to transportation and services.

Sundance at Settlers Ridge is comprised of 23 two-story buildings, each with eight to 10 homes. This unique structure more closely aligns with townhomes, as residents will enjoy ample green space, walking paths, and a secluded, neighborhood style. Community amenities include a community room with full kitchen, outdoor pool with sundeck, fitness center and yoga studio, and outdoor kitchen, to name a few.

One-, two- and three-bedroom floor plans are available. Each home will include a private entrance, with attached garage, private balcony, granite countertop, and in-unit washer and dryer.

Construction will be completed in phases, with the first building and clubhouse opening in late August 2020, and project completion scheduled for late Summer 2021.

Kraus-Anderson to build $25 million medical center in MInnesota

Sanford Health will start construction on a new heart and vascular center at the Sanford Bemidji Medical Center in Bemidji, Minnesota, in the spring of 2020.

The center will cost more than $25 million with $2.5 million raised by the Sanford Foundation. Naming rights and donor opportunities for the build

Public Notice For Qualifications Statements for Real Estate Marketing and Brokerage Services for the Metropolitan Airports Commission, Minneapolis-St. Paul International Airport

The Metropolitan Airports Commission (MAC) is requesting qualifications statements from qualified firms interested in providing real estate marketing and brokerage services for the MAC. To obtain a copy of the Request for Qualifications, please go to the following website http://www.metroairports.org/business/solicitations/ and look under Request for Qualifications. The RFQ will be released on or about January 22, 2020. MAC contact for the RFQ is Eric Johnson at 612-725-8322 or eric.johnson@mspmac.org. Questions regarding the RFQ are due to MAC no later than 4:00 p.m. CST on February 7, 2020. Submission of qualifications statements is due on or before 4:00 p.m. CST on February 21, 2020.

ing and certain areas within the center are still available.

Located between the medical center’s east entrance and the Main Clinic east of the Healing Garden, this new center will house all cardiology, vascular, pulmonary and respiratory therapy services. This includes 19 clinic rooms, 11 diagnostic imaging rooms, education rooms, a cardiovascular recovery unit family room and 3 cath labs with space to add a fourth.

Since beginning the program a decade ago, the cardiology department has experienced a 20 percent growth year-over-year reaching capacity in 2019. In that same time, heart diseaserelated deaths have decreased by up to 15% in the region.

With direct access to the second floor of the medical center, the building will allow patients to transfer to inpatient floors and services more smoothly providing a better, overall patient experience.

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