Analysis: 4 ways student high-rise developments could change Ann Arbor's rental market

And with two new high-rises currently under development - Zaragon West and 601 Forest - questions are raised about how these high-end developments will affect the off-campus student rental market in Ann Arbor.

In the past two years, Zaragon Place and Sterling 4-Eleven Lofts added about 600 bedrooms onto the leasing market in the downtown and campus areas of Ann Arbor. The additions of Zaragon West, formerly called Zaragon Place 2, and 601 Forest will add another 1,000 rooms to the market once those projects are completed.

Following the high-rise trend, the 13-story student housing project, The Varsity, was recently proposed for East Washington Street, but has yet to receive approval from Ann Arbor Planning Commission.

With a huge influx in high-end student housing coming onto the rental market in a short period of time, local real estate experts are looking at how the high-rises are changing the more traditional off-campus student living.

Here are four ways that new student high-rise developments may affect the market, according to local industry observers:

1. Improvements to off-campus properties

Many of the off-campus student houses in Ann Arbor were converted from single-family homes decades ago, making many of them outdated and rundown. Because the new developments are often of higher quality, landlords of off-campus housing may be forced to invest in improving their properties in order to compete.

Jason Costello, president of Cabrio Properties in Ann Arbor, said this is true of the properties that Cabrio owns and manages.

“The student high-rise market motivates us, and likely other owners, to take care of their properties better and provide a higher level of service,” he said.

To be sure, not all off-campus property owners have invested in cleaning up their properties yet, but Jim Chaconas, an Ann Arbor-based commercial real estate agent with Colliers International, said that landlords soon might have no other choice.

“Student high-rises will make landlords be more attentive to their properties for sure,” he said. “The student ‘slumlord’ days are over. If parents are going to pay, they’re likely going to choose something nicer for a little more.”

2. Change in rental rates

Rental rates for the new student high-rises can be more than $1,000 per person, making off-campus housing seem like a steal at rates a few hundred dollars less per month.

But because the new developments offer a high-quality living experience, some local experts speculate that off-campus landlords will have to lower rent prices to compete.

Mark Foraker, senior vice president of The Dinerstein Companies, the company that owns Sterling 4-Eleven Lofts, said he suspects that once Zaragon Place 2 and 601 Forest begin leasing, everyone’s rental rates will have to decrease.

“The new developments are going to drive rent prices down,” Foraker said. “I think it has to. High-rise rents are pretty lofty now, and they’re going to take a hit because there will be more on the market and less demand.”

Local developer Ed Shaffran agreed and said there has to be a saturation level for the high-rise market, which will eventually lower rent prices across the board.

“We’re not going to know until we hit that saturation point, but then the prices will start to come down for all of them,” he said.

3. Consolidation of the “fringe” properties

With more student housing options being offered closer to campus, the properties that are farther away from the downtown and campus areas are quickly becoming less appealing for students.

Chaconas of Colliers pointed out that the market is consolidating closer to campus, which means some of the fringe properties may fall off the student market.

Years down the road, those properties could be converted back to residential single-family homes as the demand for student housing moves closer to campus.

4. Higher standards of safety

Foraker of The Dinerstein Companies said he has seen a large increase in the demand for safe living conditions due to recent crime in Ann Arbor, including six sexual attacks that occurred in July.

“Parents, given choices and crime this summer, are willing to pay a little more for an environment that is safe,” he said.

He said the safety conditions at 4-Eleven Lofts, including 24-hour access control for all doors and elevators, security cameras and security guards in the evening hours, cannot be rivaled by most off-campus housing.

“4-Eleven is as good, if not better, than most housing as far as safety,” he said.

With these types of security measures at new student developments, off-campus housing will be expected to increase safety conditions to meet the demands of students and parents.