John Nelson
ATLANTA —Real estate investors are looking to allocate their capital in gateway cities or markets that are experiencing significant job growth. Unfortunately, that leaves Atlanta on the outside looking in, according to an expert panel discussing where investment capital is going in 2013.
“[Atlanta is] just not in the game in respect to the things that are driving job growth, and that’s the reality,” says Chip Davidson, co-founder, chairman and CEO of The Brookdale Group, an Atlanta-based real estate investment firm. “The reality is we’re still lagging behind the West Coast markets, Austin and Raleigh in the technology departments. And I don’t know of anyone who has drilled an oil well here in Atlanta recently.”
Davidson’s comments came Thursday, Oct. 4, during a commercial real estate finance and investment conference at the Westin Buckhead in Atlanta. The law firm of Morris, Manning & Martin LLP and France Media’s InterFace Conference Group jointly produced the daylong event, titled “What to Expect In 2013?” The event attracted more than 400 leading investors, developers, lenders and financial intermediaries from across the Southeast.
According to the Bureau of Labor Statistics (BLS), total nonfarm employment for the Atlanta metropolitan statistical area stood at 2.34 million in August 2012, an increase of 29,400 from August 2011, or 1.3 percent. The growth in employment locally lagged behind the U.S. national average of 1.4 percent for the same period.
Since Atlanta’s job growth hasn’t exceeded the national average, companies are wary to invest in Atlanta. Thomas Coakley, Atlanta regional director of MetLife, described how investors look for population and employment growth in their target markets.
“If you look at the place where investors are focusing, it’s local economies driven by technology, energy, medicine or education,” explains Coakley. The panel concluded that Atlanta doesn’t qualify or stack up quite as well compared to other metropolitan markets. Houston and San Francisco are leading the way in terms of job growth from August 2011 to August 2012, up 3.5 percent and 3.2 percent, respectively, according to BLS. Other growth markets include Boston, Dallas and Los Angeles.
A large number of the deals done in Atlanta are more opportunistic in nature, at least that’s what Coakley has noticed with MetLife. “You hear it over and over again. Atlanta is thought of as a risk and opportunities market,” says Coakley.
Note: Numbers in the thousands.
Sources: Bureau of Labor Statistics, Linneman Associates
Some of that perception may be due to the jobs lost in Atlanta to the Great Recession that haven’t yet come back. Jobs that have returned to a market following the downturn are referred to as “jobs-regained”.
“Atlanta has ranked very low in respect to jobs regained,”says Neill Faucett, managing principal of Philadelphia-based Lubert-Adler Group, a real estate equity firm with $16 billion of assets under management. “If you’re in a market that has a very low percentage of jobs regained, that’s where you’re going to find your opportunity-type deals.”
There are several reasons Atlanta is not thought of as a gateway city, one of which is a geographical quandary.
“There are no natural barriers here [referring to Atlanta]. You can just keep moving out,” notices Loretta Cockrum, chairman and CEO of Foram Group. “The thing about Manhattan, Miami, San Francisco and Seattle, there is a finite amount of land.”
Some of the more pertinent problems facing Atlanta, aside from the lagging job growth, is the suburban office space construction that was described as “out of control” and the troubles with the public school system.
“You’ve got a public schools system that’s not going to attract relocations into this city. In fact, it’s a big problem,” says Davidson, an Atlanta native. “So as a consequence, this is not a market that I think will move up the list in terms of desirability.”
NOT ALL BAD WITH ATLANTA
Although the panel was not too bullish on Atlanta, not all the panelists shared Davidson’s view of Atlanta as “a big city with a great airport, and that’s it.”
Will McIntosh, global head of research at USAA Real Estate, sees Atlanta as still on the short list for investors. He noted that the task facing investors is finding a deal that makes sense given the market fundamentals.
“If you look at the fundamentals across all the property types, it’s suggested that over the next five years Atlanta is going to improve in terms of vacancy rate and rent growth,” said McIntosh. “You’re going to see more and more activity.”
Atlanta did experience job growth surpassing the national average in the trade, transportation and utilities sector; professional and business services; and manufacturing year-over-year, according to the BLS. While still trailing the U.S. average of job growth overall, Atlanta does hold some advantages and has some blocks on which to build.
“There will always be capital looking at Atlanta, it’s just a matter of figuring out something that fundamentally makes sense from a real estate perspective and a pricing perspective,” said McIntosh.
LONE STAR STATE OF MIND
McIntosh and most of the other panelists could agree on one area of the country where investors are looking — Texas.
“There’s a lot of growth going on in San Antonio I can assure you,” said McIntosh. “The Texas markets are very attractive.”
Houston is leading the nation in job growth and Dallas is also exceeding the national average, according to the BLS. This is largely due to the drivers of job growth, such as the oil and gas industry, healthcare opportunities and technology. The Eagle Ford Shale play in south Texas is especially driving the market. Not only are jobs being created, but ones lost due to the Great Recession have returned.
“Almost all the Texas markets now have 100 percent of jobs regained,” explains Faucett.
Although no city in Texas is considered a gateway city, the performance of Texas markets and their job growth have lured in investors.
“Even if there is a shift away from the gateway markets [for investors], it’s going to be in Dallas, Austin, San Antonio and it already has been in Houston,” predicts Davidson. “It’s going to be in markets where there is technology or healthcare [drivers].”