Shoreline Village was one of the first new apartments to be built in response to the tremendous demand for housing in the Tri-Cities that started in 2002 and has since been outpaced by new development. "What was attractive to the buyer is the newness of the property and the fact that it is really well built," Tim Ufkes tells GlobeSt.com. The price works out to $69,444 per unit and $75 per sf; the in-place revenue stream translates to a 5.7% cap rate.

Ufkes, a broker with Hendricks & Partners in Seattle, listed the property along with fellow H&P broker Phil Oester. Together, the duo has sold more seven or eight properties in the Tri-Cities market in the last 18 months. Moreover, Ufkes says most have been at or near the asking price despite deteriorating conditions.

Having said that, Ufkes says the Tri-Cities area in general is thriving and, given an eventual rebound in hiring at Hanford--which typical hires high-paid union workers--the apartment market stands to bounce back rapidly. "Phil and I have closed more than 30 transactions in that market over the years; nine out of 10 deals sell to exchange buyers," he says. "Mostly they're individuals who are willing to close their eyes and say 'I hope, I hope, I hope.'"

Vacancy rates, which averaged about 3% in 2002, had by mid-2005 increased to 9% in Richland, 11% in Kennewick and 8% in Pasco in March. Although now new numbers were immediately available, several new projects have come online since that time, and there are two more in Pasco at or near completion.Shoreline Village had a physical occupancy of 80% when it sold earlier this month, but due to overbuilding in the market in recent years the economic occupancy is closer to 60%, says Ufkes. "Apartment managers are offering two months free on a 12-month lease," he says. "One owner gave away a Jeep in order to attract renters to its apartment complex."

The problem, says Ufkes, is that developers in recent years, seeing rapidly escalating rents due to a supply shortage, went to the Tri-Cities and built 1,500 new apartment units along with 2,000 new homes to capitalize on new demand directly and indirectly related to hiring for cleanup initiatives at the federal government's Hanford Nuclear Reservation in Richland. Indeed, there are still several apartment projects set to open this year.

The saturation would only have been temporary if Hanford could have maintained employment. Instead, it laid off 1,000 workers last year and more layoffs are expected in 2006. As a result, "unit absorption just goes into the toilet," says Ufkes. "It will take a couple of years of sustained job growth to absorb all the units and stabilize the market."

The situation could make it even harder for Robert Young & Associates, which last year listed a 1,216-unit, seven-property portfolio of Tri-Cities apartment properties for sale through Cushman & Wakefield. The complexes were built between 1968 and 2004 and range in size from 98 units to 286 units. Five are located in Richland, which has been hardest hit by the Hanford layoffs. The bulk purchase price was $97 million, which translated to a 6.4% capitalization rate.

Ufkes says it's unlikely that a single buyer, especially an institutional buyer, would want that much exposure in the Tri-Cities market. As a result, he expects the portfolio to eventually be sold off in pieces.

Instant Insights /

Tri-Cities Apartment Complex Fetches $15M

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