The mountaintop of multifamily transactions was blown off in 2020 and 2021. Sales transactions are up 300 percent from 2017. Chattanooga’s hot market has gone from $150 million in transactions to nearly $500 million. Hungry investors have found prices lower than in many other desirable cities, the cap rates higher, attractive rental price increases and the locale unbeatable.
Two-bedroom apartment rents are up over 17.6 percent in 2021 according to a recent local study yet still 19 percent below the average rate nationally. Residential price increases have outpaced the multifamily increases and made many single-family homes unaffordable for first-time homebuyers, further feeding the apartment demand.
Robert Fisher, The Robert Fisher Team, KW Commercial
In addition to the volume of transactions increasing by some 300 percent, the sales price per door has risen significantly. In 2017 the average price per door for the market was $69,459 and in 2021 we are seeing $132,125 for a 90.2 percent increase. This statistic includes all product classifications. Class A prices per door have increased from $107,193 to $163,488. This is an increase of 52.5 percent. Class C product has risen from $46,176 to $93,308 per door. This indicates a 102 percent growth. Class C has outpaced all other classes in the last four years.
A primary reason for the volume of transactions showing the 300 percent increase is because of the number of recent sales of large Class A complexes. In year 2017 we saw three Class A complexes sell for over $20 million each. In 2020 Chattanooga had nine Class A complexes sell that were each over the $20 million threshold, and in 2021 we are showing seven complexes being transacted over the same $20 million watermark on the books so far. 2017 Class A volume was about $92 million and in 2020 that volume was $340 million. Though the price of Class C product has risen faster than Class A, the sales volume difference is tremendous for the market.
The Chattanooga market is now ranked as the 100th largest MSA in the country. This has put our city on the map for some of the bigger players in the multifamily lane. Migration to Chattanooga from the states of Illinois and California and many other states is strong due to lower income taxes, lower cost of living, better weather and our beautiful surroundings.
Miller Plaza in downtown Chattanooga
Many call Chattanooga the “Denver of the South.” Residents enjoy year-round paddling, climbing, hiking, biking, golf and tennis. Chattanooga also boasts the fastest internet speeds in the country, driving business to the city.
It is expected that 2022 results will be like 2021 and 2020 unless cap rates rise substantially. For many multifamily owners it is tough not to be a seller when prices have had such a tremendous upsurge.
— By Robert Fisher, Director of The Robert Fisher Team, KW Commercial. This article originally appeared in the “2022 SREB Market Outlook” special section as part of the December 2021 issue of Southeast Real Estate Business.