Commercial real estate developer Clay Grubb is shifting his focus - lying laying low on the high-profile mixed-use projects his firm promoted in the boom times. Now, the firm is turning to buying and managing apartment complexes.

Statistics released this week suggest it's a promising change of tack.

Grubb Properties has spent six years revitalizing Elizabeth Avenue near Presbyterian Hospital but scaled back plans because of the weakened economy. A three-story, 38,000- square-foot office and retail building, home to the Loft 1523 martini bar, has struggled to attract tenants. Another marquee mixed-use project, Morrison at Sharon and Colony roads in SouthPark, is nearly fully leased, the company says.

But with financing dried up, Grubb can't further develop his existing projects.

To make money, the company tried last year flipping foreclosed single-family homes, but found profits too small.

So Grubb is now buying mid- and lower-grade apartment complexes, betting that renters will provide stable income for the future.

The company has hired Andrea Howard, former vice president with apartment giant Camden Property Trust, a publicly traded real estate investment trust, and added more than 1,000 units to its portfolio through purchases and new management agreements in 2010. The firm has added 33 employees since the beginning of this year.

Grubb is, in a way, returning to his roots.

His family started in real estate as a single-family home builder. When Grubb joined the company in 1993, he focused on acquiring multifamily properties. The booming apartment business built Grubb from a mom-and-pop shop into medium-sized company, Grubb said.

By the late 1990s, Grubb had turned to office and retail development, which he focused on during the past decade.

But when the real estate market crumbled, Grubb needed to find new ways to make money.

Last year, Grubb Properties experimented with flipping bank-owned single-family homes. The firm bought them at auction for around $70,000 each, spent roughly $20,000 on improvements and then sold the property for around $120,000. Profits grew slimmer as more people jumped into the foreclosure market and bid up prices at auction.

It was when he was dabbling in foreclosures that Grubb rediscovered multifamily properties. He was eyeing a townhome property in Chattanooga last fall and learned about an apartment complex tied to the same lender. He bought both properties and decided to fix the apartments and hold them. Shortly after, he hooked up with Church Street Partners of Raleigh and bought a 144-unit apartment community in Greenville, S.C.

Grubb also owns Sterling Magnolia in south Charlotte and Glen-Lennox Cottages in Chapel Hill.

"We were shaking in our boots. We were very nervous," he said of the recent apartment purchases. "But it's fun. It sure beats just watching the values of your existing properties go down and down everyday when there's nothing you can do."

Multifamily properties are poised to recover earlier than office, industrial and retail projects, analysts say.

Apartments a bright spot

On Wednesday, the chief economist with the National Association of Realtors called multifamily properties the one bright spot in commercial real estate because he believes more people will start renting apartments as they find jobs.

Fewer people are expected to buy homes in the near future, in part because they either won't be able to afford down payments or won't qualify for financing.

Grubb plans to tap federal lending programs such as Fannie Mae and Freddie Mac. Grubb said his firm is also partnering with other investors and is open to working with existing owners who are struggling financially but want to stay involved.

Vacancy rates are forecast to fall from a national average of 7.3 percent in the first quarter of this year to 6.3 percent in the first quarter of 2011, according to the National Association of Realtors.

Charlotte vacancy rate up

Charlotte's apartment market surged through the 1990s as the area population boomed, and then took a hit with the recession. The area's vacancy rate was 13.6 percent in March, up from 11.8 percent a year ago, according to Real Data, which researches the market for the Charlotte Apartment Report.

Real Data President Charles Dalton said he thinks there will be opportunities for investors to buy multifamily properties at a discount, particularly for mid-grade properties in smaller markets. Grubb may see less competition because most institutional investors favor prime, Class A assets in large cities.

Grubb's Howard has been scouting properties in second-tier markets such as Charleston and Nashville that have good visibility and traffic. The goal is to add 7,500 units during the next five years.

She and Grubb expect to see what they call a wonderful "three- or four-year honeymoon" for multifamily properties. Grubb bought two properties in Tennessee for 40 percent less than they appraised for two years ago. With the Greenville property, Grubb paid 75 percent of what the building sold for 10 years ago.

Grubb said it's a good start, but he doesn't expect to see many similar deals going forward.

We got lucky," he said. "If we get a 20 percent discount to replacement cost in a good location in the future, we'll be tickled pink."