Tyler Averitt, Multi Housing Advisors
A decent amount of multifamily inventory hit the for-sale market in the first quarter of 2015, and those deals are now in the process of closing. We are seeing a lull in the number of listings across the market early in the second quarter. As owners attempt to capitalize on top-line collection, an increase in listings is expected in the latter portion of the second quarter in conjunction with the spring leasing months coming to an end.
As most know, commercial real estate has peaks and valleys, with our last peak in 2007 and the valley landing somewhere in 2010. From 2010 to early 2015, investors were presented with a great opportunity to capitalize quickly from the rising rental rates even without implementing any value-add platforms. This quick rise in rental rates coupled with historically low interest rates has been the catalyst for the surge in trades. That said, as the REO bucket has all but dried up, we expect trades to level out over the next few years. The rise in rental rates is bound to slow, so the once-frequent instances of groups buying today and flipping out in 12 months will occur infrequently. We expect groups to plan dispositions based more on the basic fundamentals like debt maturities, creating value over time with upgrades.
The buyer pool varies across each asset class from A to C; for core Class A properties, institutional investors remain the typical buyer. We have seen a few private capital groups play in this space, but that was early on in this cycle. The private capital groups tend to be priced out against the larger institutions.
For Class B value-add properties, local and out-of-state private capital investors have been the largest groups as the institutions cannot invest in these riskier deals. This allows the private sector of investors to control most of the market. For Class C properties, we are seeing most of the capital coming from private investors from other countries like Argentina, Venezuela, China, Canada, Mexico and Israel. Coupled with local investors not wanting to focus on these highest-risk assets and the debt markets still tainted from the last market crash, the foreign investors have moved in expecting to get a good price.
Another market that is quickly rising is the infill urban market of Atlanta. As Millennials flood the city upon graduation, new product is needed to support the growth. MHA is marketing a high-profile infill site: EDENS’ mixed-use development off of Moore’s Mill Road on the west side of Buckhead/North Midtown. EDENS has owned the 10-acre site since 2007 and has been through many ups and downs with the market, but the pieces are finally all coming together. The mixed-use development will include a roughly 45,000-square-foot Publix, about 25,000 square feet of retail space, two restaurants and up to 346 apartment units. The project is slated to break ground this year with the grand opening set for early 2017.
Atlanta’s fundamentals are stronger than ever, and expect the next few years to produce steady rent growth, healthy returns and great opportunities for all groups to find their space to play in this new market.
— By Tyler Averitt, Managing Director, Multi Housing Advisors. This article originally appeared in the May 2015 issue of Southeast Real Estate Business.