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Baltimore's Modest Apartment Conversions May Be Better Bets Than Luxury High-Rises

824 North Calvert St. in the Mount Vernon neighborhood of Baltimore

Baltimore developers are flooding the market with new apartments, but the best bets may not be the shiny new towers that get the most attention.

The city's overall population has been shrinking for decades, but its strongest demographic right now is made up of millennials and those even younger, a group making $50K or less, Poverni Sheikh Group CEO Eugene Poverni told the Baltimore Sun.

Several developers, including Poverni, Yonah Zahler's Zahlco and Edgemont Builders, are focusing on converting former office and industrial buildings near the sought-after Inner Harbor area and in farther-afield neighborhoods into apartments the average millennial can actually afford.

Zahlco has six such properties currently open, two of which are fully leased, with a seventh under construction at 9 East Mount Royal in Mount Vernon. Though that is a demolition project, the bulk of Zahler's portfolio is made up of redevelopments, which are largely eligible for preservation tax credits. As real estate consultant Al Barry told the Sun, such projects are easier to underwrite and make profitable than ambitious projects such as at Locust Point and on Light Street.

The redevelopments are also more responsive to the demand for multifamily in the city. Two-thirds of the population seeking apartments are young, single people and couples rather than families, and half of that group is moving from outside the city. A big reason why that demographic is choosing Baltimore is the city's affordability relative to nearby cities Philadelphia and especially Washington, D.C.

Though a drawback of living in such properties scattered in neighborhoods is the city's crime problem, low rents also affect retail in the area, giving nontraditional and experimental operators low barriers to entry, bringing up the "cool factor" of an area, which makes a material difference to the residents surveyed by the Sun.