Davenport, Iowa
“Iowa’s Front Porch” Leaves the Light on for Investors
by Carole VanSickle Ellis
Davenport, Iowa, also affectionately dubbed “Iowa’s Front Porch,” was on the rise in 2010. It was Iowa’s third-largest city (or maybe bigger, since the municipal government later appealed the U.S. Census count saying the bureau had missed a large section of residents), had dramatically upped its fiscal budget by $35 million thanks to rising property values and the associated property taxes, and was set to receive several recognitions for its “livability”. Things were starting to look a little bit brighter for a city that had struggled through the housing crash of the mid-2000s with some of the highest foreclosure rates in the area.
A decade later, Davenport is definitely making good on that recovery. Prices are rising and, in conjunction with low interest rates, Davenport has become one of the most affordable cities in the country. That affordability does not necessarily mean it is easy to buy a house, however, and it does not mean that the city is not experiencing appreciation. Year-over-year, Davenport posted a nearly 12-percent rise in median list prices in February 2021, and median home values had climbed by nearly 30 per cent in the attractive $55,000-$110,000 range according to NeighborhoodScout.com. Home prices overall have risen in the region by just over 19 percent in the last five years.
Local real estate professionals expect more appreciation and strong market growth in 2021. “Low mortgage rates have been the key reason for the housing market’s strong performance in the midst of the pandemic and high unemployment,” observed Ruhl & Ruhl Realtors in their Spring Forecast. The group predicted that interest rates could rise, and home prices would remain attractive. “The good news for buyers: more homes are likely to become available during the last six months of 2021,” they added.
If Ruhl & Ruhl analysts are correct, that is, indeed, great news for buyers. At present, there is high demand for anything under $900,000, and a white-hot market for anything below $300,000. Caroline Ruhl, CEO of Ruhl & Ruhl, noted that overall inventory is down 19 percent year-over-year with only 3.5 months of housing inventory supply. This means that retail buyers and investors alike are competing fiercely for anything that goes on the market, with some homeowners reporting making an offer before ever seeing the property they plan to buy. “We’re so desperate for that inventory,” Ruhl said.
“If you list it, it will sell,” agreed a local compliance officer in an interview with the Quad-City Times. The Quad Cities area is comprised of the cities of Davenport, Iowa; Bettendorf, Iowa; Rock Island, Illinois; Moline, Illinois; and East Moline, Illinois. Davenport is one of the original four cities that made up the region, and Bettendorf was added to the official list in the early 1950s although the community never adjusted the nomenclature (see sidebar for Davenport’s place in the Quad City region and local history).
A Long, Slow Resurgence Comes to Fruition
Things have not always been so hot in Davenport, however. In fact, after a significant bull run throughout the 1950s and 1960s, the city took a severe economic hit when pivotal employers like International Harvester, John Deere, and, later, Caterpillar scaled back or closed their doors in the area. Although not all of these companies were based in Davenport, specifically, they all operated in the Quad Cities area. This meant that the departures had a direct impact on the population of Davenport. (Investors should note that John Deere is presently the second-largest employer in the Quad City region once more.)
Despite concerted and even award-winning efforts to revitalize Davenport, the city floundered until the 1990s, when the area began to achieve recognition for community-development efforts like the River Renaissance project, which, after some initial struggles, brought the Figge Art Museum and the River Music Experience to the formerly struggling downtown Mississippi Riverfront area. The $113.5 million project would ultimately provide a foundation for a thriving downtown area, including upgrades to the historic Adler Theatre and the debut of the Modern Woodmen Baseball Park, the Skybridge, two parking ramps, and a local-business support center.
Bill Wilke, who served as chairman for the Downtown Davenport Strategic Plan Community Task Force, recalled trying to “figure out a way to bring some of the vitality back to the downtown that had been siphoned away by years of disinvestment and flight by businesses and workers.” The project ultimately received a $20 million grant from the Vision Iowa Board and massive local support from the residential population and, as a result, from businesses that chose to privately remodel, renovate, and upgrade properties in the area in conjunction with the River Renaissance. One developer, citing the concentration of effort in a small area, opted to invest $3.8 million of private money into an office condo development and another $2.5 million into a venture capital center that would be built nearby. He explained, “$113.5 million in investment: that is a huge amount in a three- or four-block area. It will look instantly different.”
The Downtown Davenport Partnership reported once the project was complete, “The River Renaissance amenities served as a major catalyst for the growth downtown Davenport would enjoy in the mid-2000s and into the next decade. The city continues to enact highly effective community planning initiatives; its Davenport in Motion multi-modal transportation master plan is currently set for completion in 2025 and will create a “pedestrian-friendly, urban community where residents can access daily needs and activities by foot, bike, or transit”.
“Gold Coin” in Rental Property
Davenport’s track record of visualizing and then enacting large-scale, effective community master plans is a positive indicator for real estate investors. The city is clearly dedicated to its own growth and sustainability, and local planners and policymakers have demonstrated the ability to identify productive projects that will add value to properties in the area while attracting new residents. An unusually high number of these residents are likely to be renters, as well, said Marco Santarelli, CEO of Norada Real Estate Investments.
“The Davenport real estate market is unusual not only for having a large student market since there are more than a dozen colleges within 50 miles of downtown Davenport, but a fairly large population of military families as well due to its proximity to Rock Island Arsenal,” he explained. Additionally, Santarelli said, Iowa compares favorably to neighboring Illinois in terms of affordable property tax rates. This has created a “flight” scenario as homeowners leave Illinois, which boasts one of the highest property tax rates in the nation, for more affordable Iowa cities offering proximity to the same employers.
Ruhl agreed, although she noted that more renters in the area are electing to buy thanks to low interest rates and the COVID-driven demand for single-family residential housing. Her brokerage is seeing real estate investors “snatching up homes” in the $85,000-$200,000 price range, she said. “It’s like a gold coin in rental property. You can buy homes really cheaply here, but our rents are pretty good.” Ruhl said that about 20 percent of the local housing inventory has been “converted” from single-family resale to single-family rentals either by investors buying rentals in the area or by homeowners electing to hold onto existing properties as rentals.
Plenty of Potential Remains
For investors who fear they have missed their window of opportunity in today’s hot real estate market, Davenport represents a unique opportunity to get involved in a new market with plenty of room to grow. Real estate investors are not limited to acquiring rentals, either. Other strategies like flipping, which are getting increasingly difficult in many markets, are still viable in Davenport.
According to a report from ATTOM Data, Davenport posted one of the biggest increases in home-flipping rates in the country last year with a jump of 18.5 percent in the third quarter. “Home flips as a portion of all home sales decreased from the second to the third quarter of 2020 in 148 of the 159 metropolitan statistical areas analyzed in the report,” wrote ATTOM Data analysts. However, they added, profit margins increased at the same time.
“This all happened in the context of the pandemic, which has created unusual circumstances for the housing market to thrive, and that has included the home-flipping business,” said ATTOM Data’s chief product officer Todd Teta. “For now, the prospects continue looking up.”
In Davenport, those prospects are also likely to continue looking up in the context of the pandemic, at least for the local economy. Although the state of Iowa has struggled with low vaccination rates, Iowa governor Kim Reynolds rolled back all COVID restrictions on Iowa businesses in February. Davenport was already benefitting economically from shifting spending patterns thanks to stringent lockdown orders in Illinois. Many major employers on the Iowa side of the Mississippi River, such as Deere & Co., the Rock Island Arsenal, and Arconic Corp., were deemed essential by Iowa, and the state did not mandate face masks in many retail and eating establishments. The result, reported The Wall Street Journal in June 2020, was “the once-even split in payment of sales taxes between [the Quad Cities] is now more like 65 percent in favor of Iowa,” which is home to Bettendorf and Davenport.
Paul Rumler, chief executive of the Quad Cities Chamber, said, “This is truly an inflection point that will change the next generation.” For Davenport, the change certainly seems largely positive going into the latter half of 2021.
Sidebar 1:
Davenport’s COVID Response: The Resiliency Projects
While many municipal governments have received harsh criticism for their failure to distribute stimulus funds from federal and state governments in an effective, productive manner, many of Davenport’s small businesses have received direct lifelines in the form of forgivable loans and grants. The City of Davenport’s Economic Development Office created two “Resiliency Projects” to assist in the distribution of the stimulus funding and financial assistance. The Small Business Resiliency Project is currently on its second round of funding, and the newer MicroEnterprise Resiliency Project debuted on March 15, 2021. Both projects are funded by CARES Act funding distributed through Davenport’s Community Development Block Grant Program and by additional capital from the current administration’s American Rescue Plan.
The Small Business Resiliency Project distributed about $900,000 in its first round of funding to help local small businesses with mortgage payments, rents, utility costs, employee wages, and operational expenses. Most of the forgivable loans were about $20,000. The second-round hopes to leverage a share of the estimated $73 million that will flow to Davenport and Scott County from the American Rescue Plan. The MicroEnterprise Resiliency Project is designed to assist small businesses employing no more than five total owners and employees and has a
separate application process from that of the Small Business Resiliency Project, although qualified businesses can apply for either program.
“Davenport community has always been invested in growing and attracting small businesses, earning the number-three spot on Livability’s Top 10 List of the most-diversified economies in the U.S.,” the Community & Economic Development Office stated. “We will defend that title against the COVID-19 pandemic.”
Sidebar 2:
The Quad Cities Combination: Five Cities, Two States and a Common Identity
To really understand the Davenport, Iowa, real estate market and broader economy, it is important to understand the city’s place in the broader “Quad City” region. The Quad Cities region includes five cities (originally four): Davenport and Bettendorf, Iowa, and Rock Island, Moline, and East Moline, Illinois. When Bettendorf officially joined the list, local governments attempted to rename the region “The Quint Cities,” but the nomenclature never caught on.
The Quad Cities area had an estimated population of roughly 475,000 in the most recent U.S. Census report. In all, the Quad Cities region includes six counties that span the state line between Iowa and Illinois and, according to the Downtown Davenport Partnership (DDP), “casts out a net to an additional 37 million people who live within a 300-mile radius”. The five cities share a Chamber of Commerce and, as Chamber chief executive Paul Rumler described it, “We cross borders on a regular basis. People don’t know what state they are in.” This became somewhat less accurate in 2020, however, since Illinois and Iowa had quite different state-level responses to the COVID-19 pandemic. However, the Quad Cities still are usually discussed as a whole by economists, analysts, and real estate professionals active in the area because it is common for there to be extensive overlap of residents, employers, and tax dollars between the five metro areas.
The Quad Cities area boasts a large number of essential businesses that are also major employers, and this population helped sustain local economies like Davenport’s during 2020 and into 2021. According to Scott County, Iowa’s economy & market analysis, the top 10 employers in the region are:
- Rock Island Arsenal (defense manufacturing, 6,163 employees)
- Deere & Company (agricultural innovation, 6,000 employees)
- Genesis Health System (healthcare, 5,173 employees)
- Hy-Vee (grocery, 4,568 employees)
- UnityPoint Health – Trinity (healthcare, 3,954 employees)
- HNI Corporation/The Hon Company/Allsteel (office furniture manufacturing, 3,200 employees)
- Walmart (warehouse clubs & super centers, 2,821 employees)
- Arconic (aerospace and defense aluminum, 2,500 employees)
- Tyson Fresh Meats (food processing, 2,400 employees)
- Oscar Mayer/Kraft (food processing, 1,600 employees)
In Davenport, specifically, the municipal government has worked diligently to attract a share of these recession-resistant employers and support the small businesses that follow their employees through local incentive programs that reward job creation and real estate investment with loans, grants, and tax-abatements. The city aggressively promotes its “productive, skilled labor force that can be employed at a lower cost than the national average,” according to the Davenport Chamber of Commerce.
The DDP describes the geographic advantages this way:
Our centralized region, the only place where the Mississippi River and Interstate 80 intersect, offers multi-modal transportation options [and] affords easy, cost-effective access to domestic and international markets. Criss-crossed by four interstates and over a dozen state and federal highways, we are within a five-hour truck drive of Milwaukee, St. Louis, Kansas City, Des Moines, Indianapolis, and Omaha, and within a day’s drive of most of the U.S. business population and parts of Canada.
3 – BEDROOM SINGLE-FAMILY RENTAL PRICES
The Davenport-Moline-Rock Island IA-IL is the 177th largest metro by population with 379k residents. Current 3-bedroom SFR rental prices average $1,180 for the MSA.
Top-end rent areas in Bettendorf IA, Donahue IA, and Taylor Ridge IL areas (red) have an average rent range between $1,300 to $1,400. The least expensive areas (white/light red) in Davenport, Moline and Milan start around $1,000 to $1,150.
RENT-TO-INCOME
As of 2019 census data, the Davenport MSA had a median household income of $62,000, ranking 35th highest amongst the largest 200 metro MSAs.
3-bedroom SFR rent-vs-income ratios show an affordable rental market thanks to relatively high incomes. The metro ranks 9th in most affordable rent vs income with a rent-vs-income ratio of only 22.9%.
Only a few dark-blue areas reflecting the highest R/I ratios over 28%. Light-blue areas have affordable rent-to-incomes between 22%-28%, generally where household incomes are above $50k. White colored areas throughout the market have the lowest R/I below 22%.
5-YEAR RENTAL PRICE APPRECIATION
In the last five years, 3-bedroom SFR average rental prices over the Davenport MSA have increased by 22%, ranking the metro just inside the top 100 for five-year rental price appreciation.
5-year rental price increases have increased the most in Davenport, Eldridge and Le Claire on the Iowa side of the river, also Milan IL with over 22% 5-year increases (dark green).
The sage green areas have a moderate 5-year increase of 12%-22%. The remaining zipcodes in the MSA (white) have only mild rental price appreciation under 12%.
YIELDS
Median SFR home prices are only recently reaching $150,000, gaining 18% in the last five years.
Gross Rental Yields (GRY) across the top 200 U.S. markets average 8.6%. The weighted average GRY in the Davenport-Moline MSA has an attractive market yield of 11%.
Highest yield areas are on the Illinois side of the Mississippi. Dark purple sections represent yields over 12%, light purple areas have moderate yields of 8%-12%, white shaded areas have yields of less than 8%, coinciding with high home prices or lower rents.
