Why developers have stopped building apartments
The economics of building apartments in the Twin Cities doesn't work, and it could be a long time before it does.
Why it matters: The metro area is already undersupplied on housing. A staggering decline in multifamily building could drive up prices in the years to come.
By the numbers: After peaking at 15,500 in 2022, permits issued to begin apartment construction in the metro fell to 5,000 last year and are on an even slower pace this year, according to preliminary data from the U.S. Department of Housing and Urban Development.
Zoom in: Sherman Associates has been one of the most prolific local developers in recent years, building hundreds of units in Minneapolis and beyond.
The company doesn't have a single project under construction right now, and as CEO Chris Sherman told Axios, his Minneapolis firm can't make it work without public subsidies.
State of play: While there can be some outliers, the typical cost to build a midrise apartment building (think four to five stories) has reached $320,000-$340,000 a unit, Sherman said.
Meanwhile, the average price paid for Class A apartment buildings was $223,400 per unit last quarter, said Heidi Addo, a broker who sells multifamily communities for Michel Commercial Real Estate.
This massive gap is a nonstarter for most developers, especially merchant builders, who develop apartment communities, fill them up with renters and then sell.
The big picture: The three main reasons for the slowdown:
Construction costs have risen nearly 40% since 2020, according to general contractor Mortenson's Construction Cost Index for Minneapolis.
Interest rates have risen dramatically since 2022, and there's a correlation between them and what price sellers can get for apartments. When interest rates were historically low in 2022, the average sale price of apartments peaked at $285,000 per unit, according to a Michel Commercial Real Estate report.
Rents have not kept up with rising costs. Asking rents in the metro increased only 1.4% year over year in March, to an average of $1,543 per unit, according to the report.
Friction point: Sherman said apartment sales prices will have to eclipse $400,000 per unit before his firm begins building again, with the exception being projects that receive public subsidies, like the one they're working on in St. Louis Park.
"The numbers are just upside down — and not by a little, but a lot," Sherman said.
What we're watching: Both Addo and Sherman believe rent increases are coming. Addo is already tracking major hikes in areas of the metro where few units have been delivered in recent years, particularly the northern suburbs.
Sherman said the sweet deals renters have been getting — like free months of rent for new leases — will be drying up soon.
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Axios
9 hours ago
- Axios
Why developers have stopped building apartments
The economics of building apartments in the Twin Cities doesn't work, and it could be a long time before it does. Why it matters: The metro area is already undersupplied on housing. A staggering decline in multifamily building could drive up prices in the years to come. By the numbers: After peaking at 15,500 in 2022, permits issued to begin apartment construction in the metro fell to 5,000 last year and are on an even slower pace this year, according to preliminary data from the U.S. Department of Housing and Urban Development. Zoom in: Sherman Associates has been one of the most prolific local developers in recent years, building hundreds of units in Minneapolis and beyond. The company doesn't have a single project under construction right now, and as CEO Chris Sherman told Axios, his Minneapolis firm can't make it work without public subsidies. State of play: While there can be some outliers, the typical cost to build a midrise apartment building (think four to five stories) has reached $320,000-$340,000 a unit, Sherman said. Meanwhile, the average price paid for Class A apartment buildings was $223,400 per unit last quarter, said Heidi Addo, a broker who sells multifamily communities for Michel Commercial Real Estate. This massive gap is a nonstarter for most developers, especially merchant builders, who develop apartment communities, fill them up with renters and then sell. The big picture: The three main reasons for the slowdown: Construction costs have risen nearly 40% since 2020, according to general contractor Mortenson's Construction Cost Index for Minneapolis. Interest rates have risen dramatically since 2022, and there's a correlation between them and what price sellers can get for apartments. When interest rates were historically low in 2022, the average sale price of apartments peaked at $285,000 per unit, according to a Michel Commercial Real Estate report. Rents have not kept up with rising costs. Asking rents in the metro increased only 1.4% year over year in March, to an average of $1,543 per unit, according to the report. Friction point: Sherman said apartment sales prices will have to eclipse $400,000 per unit before his firm begins building again, with the exception being projects that receive public subsidies, like the one they're working on in St. Louis Park. "The numbers are just upside down — and not by a little, but a lot," Sherman said. What we're watching: Both Addo and Sherman believe rent increases are coming. Addo is already tracking major hikes in areas of the metro where few units have been delivered in recent years, particularly the northern suburbs. Sherman said the sweet deals renters have been getting — like free months of rent for new leases — will be drying up soon.
Yahoo
3 days ago
- Yahoo
What's at stake if world's most powerful market finally buckles after decades-long U.S. debt splurge
The bond market has been getting a lot of attention lately, as the U.S. wrestles with its debt ceiling and Congress works on passing a big tax-and-spending bill. The U.S. has the world's deepest and largest bond market, with its roughly $29 trillion of outstanding Treasurys representing an IOU to be paid by the government to its creditors. The interest rate, or yield, on that debt can fluctuate based on how lenders view the country's creditworthiness. My husband and I bought my mother-in-law a condo. Upkeep costs $2,800 a month. She refuses to get a roommate. My new husband gave me a contract and told me to 'sign here' — but I refused. It was the best decision of my life. 'I prepaid our mom's rent for a year': My sister is a millionaire and never helps our mother. How do I cut her out of her will? My daughter's boyfriend, a guest in my home, offered to powerwash part of my house — then demanded money I help my elderly mother every day and drive her to appointments. Can I recoup my costs from her estate? Amid heightened focus over the large U.S. deficit and the borrowing that will help fund it, JPMorgan Chase & Co. JPM Chief Executive Jamie Dimon on Friday warned that the bond market will crack at some uncertain point down the road — and create panic. So-called bond vigilantes are back, and Dimon said he wasn't sure how long it may be before a crisis emerges. The deficit is 'massive' and too much spending will one day lead to a 'day of reckoning,' said Jeffrey Sherman, deputy chief investment officer at DoubleLine, in a phone interview. 'The bond market one day will say, 'You can't borrow money,'' at least not at these levels, he noted. To help fund its deficit, the U.S. government sells Treasurys to domestic and foreign investors. 'We can't just continue to spend, spend, spend and just assume that the markets will take it and the world will buy our bonds,' said Sherman. 'The big crack would be a failed auction,' in which the Treasury Department comes to the market to sell bonds but investors don't show up, he said. Beyond warning shots, 'so far you haven't really seen anything that's anywhere resembling that,' according to Sherman. But the potential for weaker demand for Treasurys risks sending yields higher, raising the cost of borrowing for the government, companies and Americans. Bond investors may push back for more yield in the Treasury market should they view disconcerting fiscal policies becoming a larger, more pressing problem. While worry over the unsustainable trajectory of U.S. spending and debt levels isn't new, 'a sharp visceral reaction' in the bond market might capture the attention of policymakers, according to Sherman. Interest rates in the bond market have been 'whipping around' lately, partly due to tariffs, yet yields have generally kept within trading range since around late 2022, he said. To his thinking, 'you'd be at new highs in yields' if the bond market was signaling 'it's really a big problem.' Long-term rates climbed in May, but the 10-year Treasury yield remains below levels seen in January. The yield on the 30-year Treasury bond BX:TMUBMUSD30Y fell 9.6 basis points Wednesday to 4.887%, while the 10-year Treasury rate BX:TMUBMUSD10Y dropped 9.5 basis points to 4.364%, according to Dow Jones Market Data. Bond yields and prices move in opposite directions. Investors have been tracking the approach of the 'X date' this year — the date when the Treasury Department would run out of cash to pay all its bills on time unless Congress acts to lift the U.S. debt ceiling. Congress, meanwhile, is working on a legislative package on spending and tax measures that includes a provision on increasing the federal government's debt limit. That legislation, known as the One Big Beautiful Bill Act, has been passed by the House of Representatives and now needs Senate approval. In an interview aired Sunday on CBS's 'Face the Nation,' Treasury Secretary Scott Bessent declined to specify a precise X date but said the U.S. is 'never going to default.' Last month, in a May 9 letter to Congress, Bessent had urged lawmakers to lift or suspend the debt ceiling by mid-July to 'protect the full faith and credit of the United States.' Sherman agreed that the U.S. will never default on its debt, but warned that does not mean that bond investors won't push rates on Treasurys meaningfully higher should government policies or behavior in Congress continue to damage the 'brand of America.' The Congressional Budget Office on Wednesday estimated the budget bill would add $2.4 trillion to the deficit over the next decade. Investors in the U.S. exchange-traded-fund industry seemed hungry for bonds in May. Bond-focused ETFs saw their third-largest monthly haul ever in May at $37 billion, with inflows spanning across areas such as government and corporate debt as well as mortgages, according to State Street Global Advisors. That put bond ETFs on path for 'a record-breaking year of more than $360 billion of inflows,' said Matthew Bartolini, head of Americas ETF research at State Street, in a note. 'Total bond ETF assets are now $1.95 trillion,' and could surpass $2 trillion for the first time by mid-July if flows remain 'on trend' without a material weakening of returns, he said. Looking within the category of government debt, Bartolini found that ETFs targeting long-term bonds of more than 10 years pulled in almost $5.7 billion last month, according to his note. Intermediate-term bond ETFs saw $1.8 billion of May inflows, while short-term government bond ETFs had outflows of $3.2 billion last month as 'investors lightened up on their cash-like allocations.' Although May demand for long-term Treasurys seems like 'a bullish signal,' Bartolini cautioned that it could also reflect shorting activity, or traders betting that prices of those bonds may fall. 'Long-term U.S. Treasury bond ETFs have seen a rise in short interest all year, and ETFs can be bought, lent out and then shorted,' he wrote. 'A bearish bet on long-term U.S. Treasurys is not too farfetched,' considering fiscal deficit concerns recently underscored by Moody's decision to downgrade U.S. government debt as well as other worries such as a global trade war sparked by tariffs, according to Bartolini. Investors have been closely watching U.S. trade policy, as they worry tariffs risk slowing the economy and increasing inflation. Sherman said he sees uncertain policy on global trade adding to 'a push and a pull' on Treasury yields — with fears over slower growth pushing them lower, and inflation and potential fiscal issues pulling them upwards. Among the most recent trade developments, President Trump this week signed an order imposing 50% tariffs on steel and aluminum that took effect on Wednesday. The White House has announced a wide-ranging set of tariffs this year — including large levies on countries that were rolled out on April 2, but subsequently paused as the U.S. negotiates trade deals globally. The first 90-day pause is set to expire around July 9. Read: Trump says 'very tough' Xi is 'extremely hard to make a deal with' 'Don't be a risk seeker right now,' said Sherman, who is co-portfolio manager of the DoubleLine Opportunistic Core Bond ETF DBND. For example, investing in corporate credit that has a short duration of a couple years and 'can get through the cycle' is preferable to 'buying something speculative over 10 years,' he said. As for Dimon's recent bond-market warnings, the timing of a potential tipping point that might stir up panic as bond vigilantes keep watch over the U.S. fiscal situation remains uncertain. Asked about U.S. debt and deficits during an interview aired Monday on Fox Business Network's 'Mornings with Maria,' Dimon said it's a 'big deal' and that one day the bond market is going to have 'a tough time.' But, he reiterated: 'I don't know if it's six months or six years.' 'The situation is extreme': I'm 65 and leaving my estate to only one grandchild. Can the others contest my will? Never mind the tariffs and tantrums. The 'dual equity pain trade' means new highs for stocks. S&P 500 changes are imminent. Robinhood and these other stocks could join the index. 10 nuclear stocks expected to rise as much as 94% after Meta-Constellation deal 'I was pushed out of her life when she was 18': My estranged daughter, 29, misuses drugs. Should I leave her my Roth IRA? 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Eater
3 days ago
- Eater
As an Indigenous Barbecue Restaurant Takes Shape, Owamni's Founder Has Even Bigger Moves on the Horizon
Take a moment to imagine it: the rich, woody scents of smoked turkey, bison ribs, and whole antelope cooked low and slow wafting down Franklin Avenue. If all goes well, the Twin Cities won't have to fantasize about it. Chef Sean Sherman's latest project, Šhotá Indigenous BBQ by Owamni, aims to bring Indigenous barbecue to the neighborhood very soon. It's part of a series of big moves for Sherman's nonprofit organization NATIFS (North American Traditional Indigenous Food Systems). Just last week, the organization announced that the Indigenous Food Lab market and learning space in Midtown Global Market is closing on Saturday, June 7, in preparation for their move to 2601 Franklin Avenue South, a building formerly known at the old Seward Creamery Co-op Building — now reclaimed and renamed as the Woyute Thipi Building — where Šhotá will also reside. Meanwhile, Sherman has plans in the works to expand the presence of Indigenous Food Labs in the very near future beyond the confines of Minnesota to Bozeman, Montana, and Anchorage, Alaska. Sherman, who came to prominence under the name the Sioux Chef, and his collaborative projects Indigenous Food Lab and NATIFS have played a major role in not only elevating the stories and experiences of Indigenous people and foodways in the United States but also in pushing forward efforts to improve access to culturally specific foods for Indigenous communities in Minnesota. Each expansion and project plays a role in promoting and deepening that work. 'Barbecue, at its foundation, is really Black and Indigenous' Šhotá gets its name from the phrase Mni Sóta Makoce, which in the Dakota language means 'the place where the clouds live in the water' or 'smoky water,' evoking the essence of smoked meats. Sherman says that NATIFS is still working on its 'last bits of fundraising and financing,' but anticipates that construction will begin in July on the barbecue restaurant. ('You have to be a little bit scrappy, it might take a little bit longer. We'll just kind of see where it lands,' he says.) The space just needs a facelift, he says, nothing major. Then, hopefully, it will be open in late 2025 or early 2026. Like his James Beard Award-winning restaurant on the river, Owamni, Šhotá will be run by NATIFS, and utilize decolonized ingredients. That means no dairy, flour, sugar, beef, pork, or chicken. Instead, Šhotá will serve smoked game meats such as elk, bison, and turkey, along with gluten-free cornbread, baked beans using native beans and maple syrup, and sweet potatoes. 'We're not doing whole hogs or anything, but I could see us doing a whole antelope or a whole venison,' says Sherman, adding that he's excited to potentially experiment with meats like possum, iguana, and javelina. 'We want it to feel like a barbecue concept at heart, of course. It's just going to be in our style, which is healthy Indigenous food,' he says. 'We're not using syrupy barbecue sauces made with tons of sugar, but overall, it'll be a concept that people really will understand.' The restaurant is also an opportunity for Sherman to highlight the connection between Black and Indigenous foodways. 'Barbecue, at its foundation, is really Black and Indigenous.' Sherman's been consulting with fellow James Beard Award-winner, pitmaster Rodney Scott, and hopes exciting partnerships are down the line. Culinary figures like José Andrés, René Redzepi, and Jacques Pépin, have lent support, along with public figures like former Secretary of the Interior and 2026 New Mexico gubernatorial candidate Deb Haaland (a member of the Laguna Pueblo tribe) and actor LeVar Burton. It's important for Sherman to make sure NATIFS owns its own spaces when it can — a principle of the Land Back Movement. He bought the Seward Creamery Co-op building partly because it was along the American Indian Cultural Corridor, a prominent eight-block stretch where Sherman wants to create an anchor for Indigenous businesses. It was also a good opportunity to rename the building, he says. Now called Wóyute Thipi, meaning 'food building' in Dakota, the former Seward Creamery Co-op was named for William Henry Seward, President Abraham Lincoln's Secretary of State from 1861 to 1869. It was during that administration that Lincoln ordered the executions of 38 Dakota warriors in what is now Mankato, Minnesota — the largest mass execution in U.S. history. Seward also oversaw the purchase of Alaska from Russia in 1867, a sale of stolen land that further degraded Indigenous sovereignty. 'So his name doesn't need to be on the building. Not at all,' Sherman says. Since launching the Sioux Chef in 2014, Sherman and his nonprofit have had the wind at their backs with new projects and collaborations. This spring, he published a new cookbook, Turtle Island , a follow-up to his James Beard Award-winning The Sioux Chef's Indigenous Kitchen . But now, Sherman is about to embark on one of his biggest projects yet, making good on a long-stewing vision to increase Indigenous representation in the dining industry and access to decolonized foods for tribal communities, not just within the U.S., but all over North America by expanding Indigenous Food Lab locations. Sherman plans to open up another Indigenous Food Lab location in Bozeman, Montana, ideally in late 2025 or early 2026. Sherman says they're getting ready to hire for a regional position who will manage the Montana expansion as a NATIFS employee, but with a lot of freedom to build their own team. Like its Twin Cities location, the Bozeman Indigenous Food Lab will offer food made by Indigenous makers like beans, wild rice, juniper ash, maple syrup, roasted crickets, kelp hot sauce, and teas, alongside game meats like elk and bison. Additionally, it will feature a counter serving tacos and grain bowls. The Bozeman branch will also process and ship wholesale Indigenous foods across the state to tribal communities for greater access to healthy, ancestral, culturally specific foods. Space will be provided for Indigenous food creators to make educational videos and hold cooking classes. Eventually, Sherman says, they'll open up a full-service restaurant in Bozeman. 'That's where the job creation and product movement will really come in. We'll be able to push a ton of food dollars to the producers we want to support. And it'll drive people to be proud and aware of having this Indigenous-focused restaurant in their community.' NATIFS is also planning to expand the Indigenous Food Lab to Anchorage, Alaska. NATIFS outreach manager, Rob Kinneen, is an Alaska native from the Tlingit tribe and his connections are playing a vital role in establishing the new location. Sherman is hoping for partnerships with community organizations like the Alaska Native Medical Center and the Alaska Native Heritage Center. 'Our goal was to build a nonprofit that was replicable so that we could expand and create support systems in regions everywhere.' Sherman would also like to add a location in Rapid City, South Dakota; it's a site that's especially important to him because it's closer to Pine Ridge Reservation, the fourth largest Native American reservation within U.S. borders. Pine Ridge also happens to be where he grew up. Other potential sites are also on the horizon: 'We have people in Seattle, Portland, parts of California that are very interested in us. I could see us easily in Albuquerque or Phoenix, and definitely someplace in the Northeast, although I'm not really sure which would be the best pinpoint out there.' He aims to expand past colonial borders and build deeper partnerships with Indigenous communities in Canada and Mexico. For Sherman, the importance of Indigenous solidarity expands past even this continent. 'I just want to go beyond because we're creating these really strong connections in South America, west and south Africa, and Australia, and New Zealand. There's a lot of opportunity to grow internationally in the future.' Related Brunch, Decolonized The biggest challenge, Sherman reiterates, is solidifying funding to grow their staff and start project rollouts. 'We're so close. I was trying to raise six million just to launch this space [for Šhotá], and I still have about one million left, which is not bad for starting in January. But I still have some ways to go.' Sherman's dreams are sky-high even in the best of climates, but it's hard to ignore that the Trump administration's budget cuts to DEI initiatives at universities, environmental programs, projects aimed at reducing racial inequities, and tribal programs might make Sherman's plans difficult, even though NATIFS doesn't rely too much on government funds. Still, Sherman has hope in NATIFS and its partners' abilities to weather the storm and keep creating transformative projects. 'It's not a friendly environment for people of color under this administration. But regardless of who is in office, the work remains the same, and we're going to keep doing it.' Šhotá Indigenous BBQ by Owamni is headed to 2601 Franklin Avenue, planned for a late 2025 or early 2026 opening. Sign up for our newsletter.
