Construction of new multifamily housing has definitely slowed over the past year or so in New Hampshire, thanks largely to skyrocketing construction costs, higher interest rates and more cautious developers and lenders who question if the financial numbers actually work for new apartment projects. 

Yet some multifamily projects have proceeded precisely because demand for housing remains so strong in New Hampshire, despite economic uncertainties, while supply remains at historically low levels.  

Among the multifamily projects underway include 75 Canal St. in Manchester, where Jones Street Investment Partners recently secured $65.1 million in financing from Berkshire Bank to build a new 250-unit apartment complex. Construction on the Canal Street project began late last year, with the complex expected to be completed in 2024. 

Also in Manchester, Brady Sullivan, one of the largest commercial property owners in New Hampshire, recently started the conversion of offices at 1230 Elm Street into 110 apartment units, with the project expected to be completed in about a year. 

Meanwhile, Brady Sullivan, which owns about 4,500 apartments units and more than 1 million square feet of office space in New Hampshire, has recently undertaken an office-to-residential conversion at 1000 Elm St. in Manchester with 150 apartments, and is planning a similar conversion of 97,200 square feet of space at the old Brookstone building in Merrimack into 90 residential units. 

Brady Sullivan is also hoping to redevelop the old Cigna building in Hooksett into 81 apartments, though that plan has been rejected twice by local authorities. Last November, the New Hampshire Housing Appeals Board sided with Brady Sullivan Properties on its plans to redevelop the former Cigna building. 

In Concord, the Flatley Co. last year began construction of a new mixed-used complex, with 64 residential units, on the site of the old state Employment Security Building.  

And in Dover, the city council earlier this month approved an amended plan by Cathartes, a Boston developer, to build a 415-unit residential complex along the Cochecho River.  

“The multifamily sector is still strong, but it’s strong only in certain areas,” said Chris Norwood, president of NAI Norwood Group and a member of the board of directors at the New Hampshire Housing Finance Authority. 

Small Builders Hurt Most 

Norwood said rising construction costs and higher interest rates have hobbled smaller multifamily developers looking to build three to eight units at a time. They either can’t make the numbers work – or lenders don’t think the numbers won’t work. 

“You almost have to build 30 or 40 or more units in order to make the numbers work,” said Norwood. 

But Norwood said larger class A apartment projects are viewed as more viable, though they often still need direct or indirect public assistance, via credits, grants or public entities assuming some of the costs of a project. 

In Dover, for instance, the city agreed to fund up to $15 million in site improvements to be repaid through tax guarantees, according to published reports. 

In Concord, the city poured $2.6 million into remedial improvements at the old Employment Security site – and then later sold the property to Flatley for $350,000. 

Other projects have received support from institutions such as InvestNH, the new state housing initiative, and the U.S. Department of Housing and Urban Development. 

The state definitely needs all the housing it can get.  

The NHHFA recently reported that the state needs about 60,000 new housing units by 2030 in order to meet current demand and to bring supply-and-demand balance to the market. 

Meanwhile, the NHHFA, in a 2022 report on the state’s rental market, said the vacancy rate for all rental properties has fallen to just 0.5 percent in New Hampshire, with an average monthly rental rate of $1,510, up 33 percent over the past 10 years. 

The statewide vacancy rate for two-bedroom apartments is about 0.3 percent, with the average monthly rental rate of $1,584, up 22 percent over the past 10 years. 

“The cost of borrowing and the cost of construction may have gone up,” said Chris Sower, an executive managing director at Cushman & Wakefield. “But the fundamentals of the housing market haven’t changed. There’s still very strong demand for ground-up construction. People still like the fundamentals.” 

Construction Costs Push Rents Up 

Shane Brady, co-owner of Brady Sullivan, said the pandemic transformed the entire commercial real estate industry in New Hampshire, with the rise of remote work harming the office market and boosting demand for housing, via out-of-state people opting to live and work from newly purchased homes in the Granite State. 

The conversion of some of Brady Sullivan’s properties from offices to residential units actually began before interest rates started to rise last year, said Brady. The reason: demand for office space had softened already while the need for housing has been strong for years now. 

Brady said building conversions have brought the right mix to its CRE portfolio.  

“It’s tightened the office market and made it more balanced for us,” he said. 

He added new apartment units coming online in southern New Hampshire are averaging rents of about $2,200 a month – above the statewide average of $1,510 but still affordable to some workers. 

Bill Norton, president of Norton Asset Management in Manchester, said some workers may indeed afford $2,200 rents – but most workers can’t come close to affording such prices. 

“It’s a tough number for many people to meet,” he said. 

But he noted that the market is ultimately dictating such high prices, due largely to the skyrocketing price of construction. He noted that a 4-foot by 8-foot sheet of plywood used to cost about $24, but today costs more than $50. 

As a result, nonprofit and for-profit apartment developers alike are “struggling to make the numbers work.” 

“Current [construction] costs are not going to help with affordable work-force housing,” he said. “It’s a difficult time for new construction.”