Duluth's rental market softens REAL ESTATENew student apartments and houses converted to rentals appear to have created a glut of units

Red-hot no more.

Such is the lament of landlords in Duluth as they look at today's loosening rental market and reminisce about the good old days.

After years of enjoying low vacancies, landlords are having to work harder than ever to keep their properties full.

Some landlords have even taken to offering incentives to prospective tenants. For instance, the Highland Chateau in Duluth Heights will write off one month's rent for approved tenants willing to sign a lease. Other local property managers have gotten creative. Take, for instance, a free color TV.

"It's interesting, because those kinds of incentives have been offered in other markets, but they hadn't shown up here until the last year or so," said Susie Lannon, owner of Apartment Advisors, a Duluth property management firm. She observed that until recently, local landlords didn't need gimickry to rent their properties.

"You wouldn't see those incentives if the market weren't soft," said Mark Melhus, president of Melhus Management Co., a Duluth business that manages about 500 units of rental housing.

Melhus said he hasn't had to resort to renter incentives yet, but he understands why others have. He noted that competition for student tenants, in particular, has intensified in recent years.

Developer Mark Lambert just completed construction of a new Duluth Heights apartment complex called Boulder Ridge on Rice Lake Road. It's expected to house about 200 students. Lambert also recently built Campus Park, home to another 428 students.

Lambert has enjoyed great success attracting student tenants, partly by offering amenities such as a swimming pool, exercise room and tanning bed.

A number of single-family homes surrounding the campuses of the University of Minnesota Duluth and the College of St. Scholastica also have been converted to student housing in recent years.

"Because Duluth's rental market has been so tight for so long, and interest rates have been so low, a lot of people got into the rental business," Lannon said. "Now, the market is changing, and there seems to be glut of rental properties."

A weaker local real estate market of late also has fed the inventory of rental housing. Lannon said some homeowners who have left the area only to see their property linger on the market for months have decided to seek renters and wait for real estate prices to strengthen again.

The pressure on landlords isn't likely to let up any time soon. Lambert already has the necessary approvals in place to expand Boulder Ridge for another 600 students.

Students make up a big slice of Duluth's rental market, according to Robert Collison, a board member of the Arrowhead Multi-Housing Owners Association, an organization made up of Northland landlords. He estimated students account for about 25 percent to 30 percent of the city's renters.

If the rental market gets much looser, Melhus expects to see some homes now used for student housing put up for sale. Many of those properties could return to being single-family dwellings, he said.

For some landlords, Duluth's expanding array of student housing has caused little trouble.

Mike Peller owns 17 houses next to the UMD campus and said all the rental properties have been booked for the coming academic year since February.

But most landlords seem to agree that today's is a renter's market and apartments aren't moving as fast as they used to.

"It's taking me three to four months to rent properties that would have had no more than a one-month turnaround before," said Collison, who owns and manages five rental properties.

"The amount of time it takes us to find tenants has probably doubled," Melhus said. "Before, we would typically show a unit less than five times before it rented. Now, it might take 10 showings."

It may be taking a bit longer, but Melhus said his firm continues to find tenants.

To Collison, it seems that landlords are being squeezed from all directions. He said that spiking energy costs caused him to finish last year with a loss rather than a profit from his rental properties. Collison is even more concerned about this winter, as Duluth is considering a proposal to increase utility fees.

"If the situation doesn't improve, I think you're going to see a lot of landlord bankruptcies," said Collison, adding that he has seriously considered exiting the business.