Jan. 12, 2022

This paid piece is sponsored by Ernst Capital Group.

If you’re wondering how long the Sioux Falls apartment boom can possibly last, you’re far from the only one asking the question.

But for those who live in the market every day, it doesn’t seem like it will end any time soon.

“We get asked often how long this will keep up, but I don’t think people have a lot of perspective on how tight the market still is,” said Chris Daugaard, a partner in Ernst Capital Group.

Consider this: As one year ends and another begins, it’s not typically the time when apartment owners see their peak occupancy.

But on a recent day in late December, you essentially could count on two hands the number of available apartments in the Ernst portfolio of about 1,600 units in Sioux Falls.

“That’s pretty high any time of year but especially now,” Daugaard said.

“Typically, you hit peak occupancy in August or September, and it slows down at the end of the year until about February and then picks back up through summer. And right now, we’re not really seeing any slowdown.”

For Ernst Capital, which works with the multifamily market at every stage of the property’s life cycle, they’re not planning to slow down development – and with good reason.

“Knowing we have a lot of people wanting to move into Sioux Falls and South Dakota, we’re not concerned about building more apartments,” CEO Todd Ernst said. “We would like to continue building more units that make sense for our investors and meet the underwriting standards of our lenders.”

Ernst Capital has more than 900 apartment units in various of stages of construction in Sioux Falls, including hundreds at Willows Edge on the east side of the city off Veterans Parkway north of Arrowhead Parkway.

Many units are renting as soon as they’re available and before they’re done with construction.

“In the past, it has been common for a property under construction to lease a few units each month,” Daugaard said. “Today, the only thing constraining units to be leased are units that are available. We’ve had properties before where it’s taken 12 to 14 months to fully lease up, and we were happy about that. Now, as soon as we have a unit to lease, it’s often leased right away.”

A normal year brings 94 percent to 95 percent occupancy, he added.

“And now with the market well above 95 percent, we’re not able to build fast enough to deliver more selection and more ‘normality’ to the market,” he said.

Market-watchers also sometimes ask about the sustainability of the larger apartment complexes announced in recent months, which regularly are bringing 300 to 400 units at full build-out.

“We very much welcome the larger apartment complexes,” Ernst said. “We see it as a better scale and efficiencies, and you’re able to provide more services to residents.”

Willows Edge is a good example. It will provide more than 334 living options when built out, a mix of traditional center-load apartments and town home-style units, from studios to three bedrooms.

“We’re able to have an upgraded amenities package with any type of unit someone would want,” Ernst said.

“I think we’re building to the largest segment of market demand, that midrent price point. We’re trying to tackle it as economically as we can with as many great services as we can, run it efficiently so we can do well and offer really as affordable a rent as we can get to with all that’s included.”

It’s natural for people who are familiar with and maybe grew up around Sioux Falls to be surprised by the amount of building and development that has occurred over the past few years, not realizing the city has grown to the point it can support that level of activity, Daugaard said.

“Our peer group has evolved. We’re not comparing ourselves to smaller cities in our state but looking more regionally to cities bigger than us becoming our peers,” he said.

Ernst Capital, which also has about 1,000 apartment units in Des Moines in its portfolio in addition to Brookings and Sioux City, sees across-the-board demand but finds it most pronounced in Sioux Falls, Ernst said.

“Our region is very strong, but we see Sioux Falls as a leader amongst other communities we’re looking at,” he said. “That said, it’s strong everywhere, but we just never saw the lag in Sioux Falls during part of the pandemic that we saw elsewhere.”

There are challenges in Sioux Falls, too, though.

“Not only is housing itself a challenge, but we need to make sure that someone who is working full time and wants to be part of our community is able to access an apartment at a price that fits their budget,” Ernst said.

“There’s demand at different rent price points, and the bigger demand is at a moderate rent. We intend to build more in that segment if we could make the economics work, which is where we’re hoping to be part of a community approach to continue to add quality housing in Sioux Falls.”

Investors definitely have paid attention to the opportunities presented in the multifamily market. Ernst Capital works with many individual investors from South Dakota and the region who want to invest back into this area.

“They live here or have a connection here and want to invest close to home,” Daugaard said. “The growth people see is exciting, and they want the momentum in Sioux Falls to continue.”

While there are still opportunities to become involved, it has been popular, he continued.

“There is often a long list of interested people,” Daugaard said. “So I would say if you’re looking to participate, get in touch with companies that are investing locally because opportunities go quickly.”

To learn more about Ernst Capital Group, click here.