Opportunity in the Midwest: Why Indiana Is Gaining Favor with Investors

By Chris Bruzas, Berkadia

While the COVID-19 pandemic has had a dramatic impact on the commercial real estate industry, bright spots have emerged across the multifamily landscape. Nationally, secondary and tertiary markets demonstrate resilience and strong performance, despite challenging circumstances. One of these bright spots is Indiana. Since the start of the year, Berkadia’s investment sales and mortgage banking teams have closed more than $498 million in combined sales and financing across the state.

While Indiana has long been a solid market in the Midwest, in recent years it has emerged as particularly attractive to investors for a few key reasons.

Chris Bruzas, Berkadia

Available scale

The ability to acquire scale is increasingly important to investors looking to break into new markets and MSAs. Immediate scale is attractive for several reasons. For investors, acquisition at scale enhances geographic and unit diversification at the outset. It also allows investors, specifically those new to the region, to maximize business efficiencies on expenses. If a new buyer can acquire 1,000 units in proximity, they can reduce the burden of staff, construction costs and travel costs, to name a few. Additionally, it helps with leasing. If a prospective tenant tours a property that doesn’t have floor plans available, the client can be directed to other nearby opportunities still within an investor’s portfolio.

In this respect, the Midwest is appealing, as it provides scale at an attractive price point. For example, in 2019, Berkadia brokered the sale of a seven-property portfolio of garden-style assets totaling 1,842 units located across Indiana. It was the largest multifamily sale in the state to-date and in the Midwest in 2019 by unit count. More than 300 organizations expressed interest in the opportunity — a record for the team — because it offered significant scale with strong potential upside at a good value.

A comparable opportunity in the nearest gateway market, Chicago, would not only have significantly higher land costs, but also presents the challenges of a less favorable tax environment for multifamily and unpredictability with the city and state’s budget issues. Fewer investors are able to capitalize on gateway market opportunities like these and so, portfolio-type opportunities in Indiana and the greater Midwest provide a value-driven alternative.

Steady growth

Of course, the ability to acquire scale in Indiana and other markets in the Midwest doesn’t offer real value if the markets don’t perform well. While gateway markets have monopolized investor interest, more and more secondary and tertiary markets are attracting investors searching for quality and value.

In recent years, we’ve seen significant activity driven toward the South and the West for this reason, and deal volume and prices have increased in kind as investors recognize renters’ search for affordability and quality and diverse industries start to expand their footprints into secondary and tertiary markets. In Indianapolis, price per unit has increased from just over $48,000 in 2014 to $86,000 in the first quarter of 2020, according to Real Capital Analytics.

The Midwest is poised to capitalize on investor interest in secondary and tertiary market investment and Indianapolis is a good illustration of why these markets are viewed so favorably. In recent years, Indianapolis has maintained a vibrant medical and life sciences industry, while attracting investment from technology companies to generate strong momentum for the local economy.

Approximately 14,000 units have been delivered since 2015, and as of second-quarter 2020, the average effective rent was $934, a 2.3 percent year-over-year increase. Consistent rent growth, a solid delivery pipeline, sustained occupancy and lower cost of living are positive qualities that Indianapolis and smaller cities across Indiana share, making them smart areas to invest.


COVID-19 has shined a light on how even strongly performing cities and regions can be susceptible to disruption. And while COVID-19 is an unprecedented and hopefully singular event, it has brought to the forefront the importance of cultivating a deep understanding of the resiliency of a market prior to investing.

At the outset of the pandemic, Berkadia’s innovation team built a proprietary market application that measures a market’s potential ability to withstand the economic effects of the COVID-19 pandemic relative to other markets. The tool provides a resiliency score, which factors in employment statistics (including percentage of jobs in high-risk industries), resident personal finance (including renter share of wallet) and other layered data (including occupancy).

When these factors are taken into consideration, Indianapolis demonstrates positive resiliency attributes overall, and better than many neighboring cities, including Chicago and St. Louis.

If the past few years — and past few months in particular — have taught us anything, it’s that the multifamily market is constantly evolving. However, the appetite for renting has not waned and demand for quality housing at a good value continues to grow. As investors seek new opportunities to expand and evolve their portfolios to generate long-term success, Indiana and other markets across the Midwest will continue to gain traction for their favorable fundamentals, growth potential and broad offerings.

Chris Bruzas is a senior director with Berkadia. This article originally appeared in the August 2020 issue of Heartland Real Estate Business magazine.

Content Partners
‣ Arbor Realty Trust
‣ Bohler
‣ Lee & Associates
‣ Lument
‣ NAI Global
‣ Northmarq
‣ Walker & Dunlop

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