MetroWest multifamily properties are attracting interest from out-of-state investors looking for superior returns and betting on continuing rent growth. San Francisco-based FPA Multifamily paid $130 million in June for the Fountainhead apartments in Westborough. Photo courtesy of CBRE

For developers looking for prime opportunities to build or buy multifamily properties in Massachusetts, the Interstate 495 submarket may offer some of the best returns. 

Lower land acquisition costs, little competition from office and lab developers and strong job growth are attracting national apartment developers to outer suburbs. They’re seeing good investment opportunities in regional job centers such as Marlborough and off-the-beaten-path towns within a reasonable commute. 

In Berlin, a Worcester County town of under 3,000 residents that’s permitted just 50 multifamily housing units in the new millennium, Cleveland-based NRP Group is nearing completion of a 204-unit garden-style complex for its first Bay State development project. NRP Group paid $3.47 million for the Berlin site in January and received $37.6 million in construction financing from M&T Bank for the seven-building complex. 

While still a discount to the Route 128 corridor, site acquisition costs are rising as developers broaden their horizons for multifamily sites. 

“We’ve seen [land costs] increase substantially just since we got this under agreement,” said Carolyn Mendel, NRP Group’s vice president of development in the Boston region. “It’s a very healthy market. All the fundamentals are there and everybody is pushing a little bit further out, to our dismay.” 

The property, which is scheduled to open next spring, hasn’t set rents yet, but Mendel estimated one-bedroom units could start below $2,000, compared with Greater Boston’s $2,278 median rent cited in an August report by REIS Inc. The complex is part of Riverbridge Village, a mixed-use complex on 114 acres led by Westborough-based developer Matthew Senie. 

Land costs in the outer suburbs average $60,000 per unit, according to an October report by financing advisers Walker & Dunlop, compared with $100,000 downtown. Apartment developers cashing out this year have fetched an average $265,000 per unit in the suburbs, compared with $640,000 in Boston and Cambridge, the report said. 

“Multifamily development is getting harder to pencil in the urban core because of the alternative uses [such as office and lab space],” said Travis D’Amato, a managing director for Walker & Dunlop in Boston. “That’s pushing more development outside of Boston.” 

Apartment Demand Outweighs Office Growth 

On the Marlborough-Southborough border, a 49-acre parcel that was eyed for a large office park has a new potential owner looking to build 475 apartments. 

Fairfield, Connecticut-based Post Road Residential has agreed to acquire 107 Simarano Drive from Boston Properties and begun local and state permitting for the two-building, 550,000-square-foot Green District. The property includes 43 acres in Marlborough and six in Southborough, but no development is planned on the Southborough portion. 

Post Road recently completed the Pioneer apartment complex and earlier redeveloped the Charleston Chew factory as the Batch Yard apartments, both in Everett. 

“We decided to build an ambitious project that would feel more like if [residents] were living in Cambridge or Somerville, and create a high-quality building,” Post Road Residential CEO Andy Montelli said. “We’re basically bringing an urban model out to 495.” 

Because housing developers usually don’t have to outbid office and lab developers for sites, they can save on land acquisition costs in the 495 area, Montelli said. 

Population growth in the corridor is another favorable indicator. According to data compiled by the Westborough-based 495/MetroWest Partnership, MetroWest’s population grew by 4.1 percent from 2012 to 2018, compared with the state average of 3.7 percent. 

Job Growth Exceeds Apartment Pipeline 

CBRE is tracking 9,550 suburban Boston apartment units scheduled for completion in 2019 and 2020, compared with 7,300 in Boston and Cambridge. But even that seemingly busy pipeline is unlikely to meet the region’s demand, pointing to continuing rent increases. 

Steve Adams

Greater Boston added 44,000 new jobs in 2017 and 2018, and the suburban pipeline is “just the tip of the iceberg” in meeting that demand, according to Walker & Dunlop’s fall 2019 multifamily outlook report. 

Still, with Greater Boston’s apartment rents already ranked third-highest in the U.S. after New York and Silicon Valley, some investors remain leery of the outer suburbs. 

Boston-based West Shore LLC, a private equity firm that invests in garden-style apartment complexes primarily in the Southeastern U.S., has steered clear of the Bay State’s comparatively pricey market. 

“The conventional wisdom out on 495 is that the deals pencil to a pricepoint that seems to be a fraction of what you’re paying in Boston, or inside of 128,” West Shore President Lee Rosenthal said. “The real question is: is there enough population growth and job growth to fill another whole wave of supply?” 

For developers who think the answer will be yes, ample sources of equity and debt remain available for development and acquisitions, said John Kelly, executive vice president at CBRE in Boston. 

“There’s definitely a huge appetite for suburban value-add deals, and that would probably be one of the more active markets,” Kelly said.