The rush to rent: Edgerton rental market sees substantial growth
EDGERTON—Jan Dunn is among those who rushed to rent in a post-recession housing market that has left Edgerton with a near zero rental vacancy rate.
She and her late husband started renting at Fulton Square in Edgerton in December 2011 after owning homes for 50 years.
They were looking to downsize and didn't want to deal with yard work, snow shoveling and the other responsibilities attached to owning a property.
The two knew about the Fulton Square condos when they were built and put up for sale in 2008, but they weren't interested in buying, Dunn said.
“My husband said he'd never buy again,” she said.
Then the condos went up for rent as apartments in 2011 after Keller Properties couldn't sell them.
The Dunns jumped at the opportunity, helping feed an Edgerton rental boom.
The United States saw “breakneck” rental growth in 2012, according to Jennifer Chan, a marketing coordinator for Zillow, an online real estate database. The industry welcomed aging home owners, such as the Dunns, who were looking to downsize and Millenials just entering the marketplace.
Aggressive multifamily construction is the result of a demand for rentals and a growing U.S. economy, according to Chan. Construction in 2014 includes the projected delivery of 169,376 buildings, compared to 135,342 buildings in 2013, according to Zillow.
“All we're hearing about is multifamily rental. It's the hottest thing right now,” said Dave Haviland, a Baker Tilly manager in Madison.
The new inventory answers a pent up demand for rentals, but slow wage growth still has renters looking for the best deal, according to Zillow. The combination gives smaller cities the opportunity to attract renters.
In Edgerton, all of the conditions are right, according to some of the city's biggest rental developers.
The city is close enough to Madison for commuters but far enough to offer lower rental rates than Dane County. It's a small community with local charm, and renters get more for their money in square footage, amenities and unique living features, said Dan Rinehart, an Edgerton rental developer.
“I've always said there is no reason why Edgerton shouldn't be growing and expanding more than it is,” Rinehart said.
The city's rental market has surged, and hundreds of new renters now call Edgerton home.
It's likely the rental occupancy rate in Edgerton is 100 percent. The city does not track rental occupancy, but a few key players report having no vacancy and robust waiting lists.
Rinehart in 2011 renovated two defunct tobacco warehouses into loft apartments at 351 Fulton St., Edgerton. All 28 units, 16 in each building, were rented the first day Rinehart was granted occupancy.
He only aggressively advertised on craigslist.com and worked to fill the units months before the walls of the lofts went up.
“I knew I had something special in the warehouses and that if we built them right, for the right price, the rentals wouldn't be a problem,” he said.
The waiting list for the loft apartments fills a page, he said.
Rinehart bought three tobacco warehouses 10 years ago with plans to turn them into rental properties. The third one is used for his primary business, Rinehart Taxidermy, 203 S. Main St.
Rinehart is moving forward with plans to renovate his taxidermy warehouse into a third rental property. The building will feature 28 larger apartments, doubling the total number of units in his first two buildings.
“I'm absolutely confident in filling those,” Rinehart said of the potential rental units.
Rinehart has six other rental houses in Edgerton all filled.
“There's such a pent up demand for lodging. The rental market is good right now,” Rinehart said.
The Fulton Square condos and apartments at 100 Fulton St., were built by Keller Real Estate Group in 2009. At the time, the city was looking for proposals to fill the empty parking lot at Fulton and Main streets, said Tom Keller, a southern Wisconsin real estate developer of the Keller Group. The company decided to build a condo and apartments building similar to one they'd built in DeForest, Keller said.
The building has 26 residential units with one and two bedrooms. The condos, priced at $82,500, were a hard sell, Keller said.
“The problems of 2008 really hurt,” he said.
Sales were tough to make at the prices they needed to make the project profitable, Keller said.
“We really wanted to sell them,” Keller said.
In 2011, the group decided to rent out some of the condos. Of the 26 units, nine have been sold and the remaining 17 are rented.
Once Keller Group decided to rent them, it took only six months to fill.
“We're perfectly comfortable renting them. It's what we do,” Keller said.
The company had two market studies done by Baker Tilly in late 2006 and 2007 before construction.
Both indicated a decent sales market and a fairly robust rental market, Keller said.
“It clearly indicated Edgerton was a good rental market,” he said.
For a variety of reasons, the group decided to do a mix of condos and apartments, he said.
“In hindsight, if I had it to do over, I would do them strictly as rentals,” Keller said.
Eric Kim is a realtor with Best Realty of Edgerton and separately owns five rental properties in Edgerton. The properties are mostly duplexes and total 11 rental units.
Kim's units are fully occupied by mostly long-term tenants, he said.
Best Realty, 5 W. Rollin St., was founded by Paula Carrier in 1990. The company has properties for sale with listings in Rock, Green, Dane, Walworth and Jefferson counties, Carrier said.
Carrier got out of the rental market in the late 1990s, but said Best Realty gets calls weekly from people looking to rent. People beg Carrier to rent empty houses that are for sale, she said.
“If you only knew of the calls,” Carrier said.
In one case, Carrier was able to help a mother and daughter requesting to rent a house that was for sale. The homeowner was having trouble selling the house and was nervous about leaving it vacant, so renting ended up working out in that situation, Carrier said.
April Ofsthun and her mother, Lil Ofsthun, started renting the two-bedroom, one-bath, 1,400-square-foot house for about $950 a month. They had been living in Stoughton but had trouble finding a rental in Dane County that was the right price and dog friendly, April Ofsthun said.
They moved into the house in Edgerton last December and have the option of buying the house at the end of the summer, Ofsthun said.
Edgerton had much better prices, and the two liked the area, Ofsthun said. A 1,400-square-foot house like the one they rent in Edgerton would have cost close to $1,200 to $1,400 a month in Dane County, Ofsthun said.
The two saved money by renting outside of Dane County, but now they commute farther to work. April Ofsthun works in Oregon and Lil Ofsthun works in Madison.
“It was still really worth it,” April Ofsthun said.
Average rental rates in Edgerton came in lower than the state and U.S. averages in May 2014, according to Zillow statistics. The average rental listing price for all homes was $1,075 in Edgerton, compared to Wisconsin's average listing price of $1,132. The U.S. average was $1,310. The town of Madison came in above the national average at $1,393.
The lower rates and central location are what draw renters to Edgerton, Rinehart said.
The Gazette and Rinehart Properties conducted an informal survey of tenants occupying the 28 units at Rinehart's two tobacco loft buildings, 315 W. Fulton St., Edgerton. Of the 28 surveys distributed, 14 were returned, and 24 residents responded.
Of the responding residents, 19 indicated they commute to work, 11 to work in Madison. Of respondents, 43 percent commute more than 35 miles.
The responses confirmed what Rinehart had assumed: Most of his residents are commuters. The market research he'd done before building was pretty speculative based on what he knew about the Edgerton market, but location was going to be a big draw, he said.
“It's on the I-90 corridor. If you can get within a 30-mile parameter of Madison, that's good commuting,” Rinehart said.
Keller suspects a significant number of his residents, too, commute to Madison, Janesville or both.
A UNIQUE PRODUCT
The tenant survey indicates 16 people were attracted to Edgerton because of the tobacco warehouse apartments.
The tobacco lofts are housed in two of 55 tobacco warehouses built in the late 19th and early 20th centuries. They're two of 20 that remain.
The apartments have exposed brick, wooden beams and marble ledges among other features. It's what makes the apartments different from typical cookie cutter apartments, Rinehart said.
Historic buildings offer a great marketing advantage, said Haviland, who's a manager at Baker Tilly in Madison.
“There's a story behind these buildings. It's great to incorporate some of the touches that made these buildings historic in the first place,” he said.
Rinehart capitalized on the opportunity.
“I could envision at that time there was going to be quite a few people needing a really nice living environment on the rental apartment side, but we knew we had to create something special,” he said.
Keller agrees some renters have called for new, creative living environments, but he said it's specific to certain communities.
Renters are looking for something more for their money, Rinehart said.
Rinehart's next venture--converting his warehouse at 203 S. Main St. is going to be that much more impressive, he said.
“I wouldn't be as excited about building from scratch. The warehouses offer a different product,” Rinehart said.
Edgerton's rental market won't slow soon, Rinehart said. He's talked to some appraisers who predict an economic shift that will provide people with more disposable income to buy homes, but it might be a while until that growth is spurred, Rinehart said.
“Until then, rentals are going to do great,” he said.
Rinehart plans to pursue his third project as soon as he gets the OK to build a taxidermy plant in one of Edgerton's business parks.
Keller hasn't paid much attention to the dynamics of the Edgerton market recently but would be interested in conducting another market study, he said.
Carrier of Best Realty said Edgerton's need for rentals is identical to what she dealt with in the 1980s, and the market is strong and growing.
A few other developers have contacted the city looking to build, Edgerton City Administrator Ramona Flanigan said.
“The real estate market won't ever be where it was in 2008 and 2009,” Rinehart said. “But Edgerton has really picked up over the last 10 years in favorablity in a place to live.”