Fueled by attractive interest rates and the chance to fill niche and underserved housing markets, developers here recently have proposed or begun work on a healthy number of new apartment projects in the Spokane area.


Real estate observers say apartment construction activity this year is more robust than might have been expected in an uncertain economy, but the market should be able to absorb new units that are slated to become available in coming months.


More than 1,000 new apartment units have been proposed by developers this year, though not all of them will be completed by year end, says Vicki Mundlin, an appraiser at Auble, Jolicoeur & Gentry who focuses on the Spokane-area apartment market.


Mundlin says that so far this year, about 160 new apartment units have become available in the Spokane area, and that of the proposed 1,000 new units, probably another 400 to 450 will be finished by year-end, giving the market a total of about 600 new living units for 2002. The rest of the proposed units might not be built for a few years.


At 600 units, thats 100 to 200 more units than Mundlin earlier had estimated would be added this year, and is still well within the ballpark of what Spokane can absorb, observers say. Its also well below the volume added in the aggressive mid-1990s. In 1996 alone, developers then added an estimated 1,200 living units in the Spokane market, a building surge that caused apartment vacancy rates to shoot up to nearly 10 percent the following year and settle in at about 8 percent the next.


These days, the metropolitan-area vacancy rate is sitting at about 6 percent, according to a March survey by Washington State Universitys Washington Center for Real Estate Research published recently in the Spokane-Kootenai Real Estate Research Committees semi-annual report. A year earlier, the rate was slightly higher, at 6.5 percent. Typically, vacancy rates of around 5 percent to 6 percent are considered healthy in Spokane.


Meanwhile, average apartment rental rates have remained flat in year-to-year comparisons, at 65 cents per square foot of living space, the report shows.


Were looking at a stable market without any increases in vacancies, Mundlin says.


A large drop in the apartment vacancy rate in the Spokane Valley offset increased vacancies on Spokanes North Side and the South Hill.


In March, the survey says, the Valleys vacancy rate dipped to 5.1 percent, from 8.4 percent a year earlier. The South Hills vacancy rate, however, surged to 8.5 percent, from 4.8 percent, and the North Sides rate jumped to 8.5 percent, from 6.9 percent. Central Spokanes vacancy rate remained steady, at a relatively low 4 percent, compared with 4.2 percent a year earlier.


One wild card in determining just how many new units come on the market this year is the West Plains, where little apartment construction has occurred in the past. Now, its the focus of a couple of good-sized projects by companies associated with Spokane developer Dick Vandervert. Prominent Spokane developer Harlan Douglass also is said to be eyeing an apartment project on the West Plains, says Mundlin, though she has no further details on that rumor. Douglass couldnt be reached for comment.


Lowell McKee, who is involved in developing two West Plains projects, says he, Vandervert, and others have decided to move forward with new units in that area because they believe its underserved. Theres no new product out there, McKee says.


In general, he says, current interest rateswhich have been at 7 percent or lower for more than a yearhave made some developments more financially feasible. Developers, however, arent building apartment units solely because of the attractive financing.


Spokane is a conservative town, McKee says. You cant go out there and overextend yourself and hope that the jobs and population increase. You have to delineate whats right in front of you.


Darin Davidson, a spokesman for Spokane-based Inland Construction Co., says the apartment market demand here has tightened a small amount, but not significantly so. The company currently is involved in two apartment projects on the South Hill and North Side that are targeting specificbut differentdemographic groups.


Inland hopes that its South Hill project will appeal to adults whose children no longer live at home, a group often referred to as empty nesters. Its North Side project is expected to be built with the help of some low-income housing tax credits and likely will attract low-income families.


In my opinion, without those distinguishing factors, those projects wouldnt be feasible, Davidson says.


Activity by area


The two projects currently proposed for the West Plains are expected to include a total of 870 living units eventually.


In one of the projects, MV LLC, a company headed up by Vandervert and McKee, has started work on the first phase of the $9 million, 150-unit Rock Springs Apartments complex in Cheney, at the southwest corner of Betz Road and Al Ogden Way. Four, three-level buildings with a total of 48 living units are scheduled to be completed there next month. The additional living units are expected to be completed within the next year.


In the other project, Granite Investments LLC, another company in which Vandervert and McKee are involved, plans to start work this fall on the first stage of a $46.8 million, 720-unit complex on Hayford Road near Airway Heights. As envisioned, the first stage will include 15 buildings with a total of 120 living units.


The complex is to be built on a 40-acre site along the east side of Hayford, about a quarter-mile north of U.S. 2, and likely will be completed over the course of four years.


Between those two West Plains projects, about $16.8 million in work and 270 living units are expected to be completed over the next 12 months.


On the South Hill


On Spokanes South Hill, Inland Construction has started work on the $4 million, 54-unit Southwood Park Apartments complex, which it expects will be attractive to empty nesters. The first living units in that project, which is being developed along Regal Street, a few blocks south of the Cedar Canyon Shopping Center, which is on 57th Avenue, are to come on line this fall. Inland also will own the complex.


Closer to the Lincoln Heights shopping district, Harlan D. Douglass Inc., of Spokane, has started work on a $3.4 million, 60-unit apartment complex along Regal Street, between 35th and 36th avenues. The company started foundation work on that project in 1999, but stopped making substantial improvements to the property shortly thereafter. Work on the project resumed in April.


Also on the South Hill, Spokane developer Bob Guthrie has started work on a $3.25 million, 48-unit complex in the final addition to the Ashton Heights subdivision near Freya Street and 51st Avenue.


Up north


On Spokanes North Side, Inland Construction has formed Deer Run LP with Portland-based PacifiCap Properties Group, to develop a $7.3 million, 114-unit apartment complex on part of the former Birdies Golf Center site east of Nevada Street.


The companies have applied with the Washington state Housing Finance Commission for tax-exempt bonds to pay for part of the project. A public hearing on that proposal is scheduled for today, July 25.


About a mile and a half to the southeast, Lanzce G. Douglass Inc., of Spokane, is well under way on the $10.5 million first phase of Prairie Hills at Grayhawk along East Lincoln Road. That phase includes a total of 168 living units. When the apartment complex is fully developed, it will include 19 buildings with a total of 384 units.


In the Spokane Valley, Riverwalk Point I LLC, of Spokane, has begun development of the 53-unit, $3.75 million first phase at the Riverwalk Point low-income apartment complex. Construction started there last March and is expected to be completed this fall. The complex eventually will include an additional 60 living units and a community center, but a timeline for that part of the project isnt set yet.


Another planned project in the Valley involves a $1.7 million remodel and upgrade at the 132-unit Ponderosa Apartments complex, at 9314 E. Montgomery. VBC Ponderosa Apartments LP, of Seattle, has agreed to buy the Valley complex for $3.7 million and expects to complete that transaction by the end of August and start remodeling work shortly thereafter.


In downtown Spokane, developer Rob Brewster Jr. and telecommunications entrepreneur Greg Green plan to develop 18 to 20 loft-style apartments on the second and third stories of the Montvale Block building.


Remodeling work at the Montvale could start this summer and be completed by late this year.