The commercial real estate business hasn't had much to cheer about since the 2007 recession and the long, painful slump that followed.

Development activity is starting to pick up, for sure, but new office buildings, shopping centers and other income-producing properties remain the exception.

The most exceptional exception is the apartment business, which is expanding at a dizzying clip, both locally and nationally.

“All markets are recovering,” said Wes Fuller, who is watching the boom unfold with intense interest, as he should be. It's his job.

“It's going to end spectacularly. It's either going to be spectacularly good or spectacularly bad,” he quipped.

He's betting on good.

'All in'

Fuller is executive director of investments for Charleston-based Greystar, the biggest operator of apartments in the country. That's right, the entire country.

Backed by money from big investors and founded by former S.C. Commerce Secretary Bob Faith, the Broad Street firm and its 5,500 employees manage about 200,000 rental units in more than 100 markets for itself and other owners.

Its business plan takes a three-legged stool approach to the industry, acting simultaneously as an owner, caretaker and developer of apartments. It turns over 20 percent of its portfolio in a typical year.

Fuller said the firm's three-year construction budget totals about $1.5 billion, including the roughly 200-unit Elan Midtown rising from the dirt at Meeting and Spring streets about a mile from Greystar's head office. It's the first major apartment project to go up on the peninsula in more than 25 years.

“To use a Vegas phrase, we're all in at this point,” Fuller said at a Charleston Trident Association of Realtors Commercial Investment Division meeting this month.

Locally, the apartment market in Charleston got out of whack just as the last recession began in 2007 and 2008. By that time, overly optimistic developers had increased the rental inventory by nearly 10 percent, primarily building in outlying suburban areas on cheap land. New development then came to a near standstill as fundamentals soured south and money dried up.

Bounce back

That's changed. Money is cheap, yield-starved investors are back and demand is on the upswing. Vacancy rates in Charleston are back in the single digits, down from 15 percent a couple of years ago.

“What you're seeing is a bounce off the bottom,” he said.

It would appear that the market is headed toward another bust, but Greystar thinks otherwise, saying this development cycle is different than previous growth spurts.

“It'll be kind of hard to overbuild, though there will be lots of us who are trying,” Fuller said

He points to fundamental shifts in housing demand, noting that the national homeownership rate is falling with no sign of a turnaround anytime soon.

“It's a very positive part of our space, he said.

Firms like Greystar also are bullish about the growing wave of “echo boomers,” the 20-to-35-year-old offspring of the baby boomers who are for the most part renters. The mobile demographic isn't as enamored with owning homes as previous generations.

“The more people you have under 35, the more people who rent,” Fuller said. “That's not changing.”

He also makes a case for restraint on the supply side. For instance, projects under way now represent the first wave of development. Also, labor and other construction costs are climbing, which will scuttle some future deals.

And recession-scarred lenders are stepping back into the real estate game with sharper pencils.

“So there are some capital-market constraints on new supply,” he said.

That's not to say some markets won't overheat in places, including Charleston.

As of this month, about 700 newly built rental units were in the leasing-up stage locally.

“That's pretty tame,” Fuller said.

Another 1,400 apartments are in the construction phase, and 4,500 more have been proposed.

“That's pretty scary,” Fuller said of the latter number.

As in any real estate deal, the key to success is location. Fuller said new developments in “unique” places, such as Greystar's Midtown deal downtown or The Beach Co.'s 300-unit Boulevard project on Coleman Boulevard in Mount Pleasant, should do well.

But demand could quickly outstrip supply in other parts of the region, which would hurt rents at nearby competitors. It's for that reason Greystar isn't in the market to buy any existing apartments Charleston.

“This is really about supply and demand,” Fuller said.

Contact John McDermott at 937-5572.