From: Rebusiness Online
Author: John Nelson
Date: December 18, 2020

Southeast Enjoys Outsized Multifamily Demand Due to Stellar Job Growth, InterFace Panelists Concur

The pace at which global corporations are expanding in the Sun Belt is extraordinary. To name just a few companies generating headlines, Amazon is making a sizable investment at its HQ2 in Northern Virginia and new office tower at Nashville, a number of life sciences and pharmaceutical firms are opening in Raleigh-Durham, Microsoft recently executed a full-building lease and commitment of 1,500 jobs in Atlanta and Oracle and Tesla are relocating to Austin, Texas.

Researchers believe this corporate migration is a direct contributor to the region’s multifamily demand. Adam Couch, market analyst of asset optimization at RealPage Inc., said that after experiencing a decade of job creation wiped out in March and April, the region is now leading the charge in the economic recovery, which directly benefits the apartment sector.

“For the Southeast, after suffering big losses, we’re in recovery mode now,” said Couch. “Local markets are best performing in places like Salt Lake City, Texas, Denver and Atlanta, where [job growth] is only 2 to 3 percent below February levels. The comeback in [multifamily] leasing was concentrated in some of these Sun Belt areas.”

Dallas-Fort Worth, Atlanta and Houston led the nation in terms of apartment demand in the third quarter, each netting above 7,000 units of positive absorption. This is juxtaposed with gateway markets such as San Francisco, New York City, Seattle and San Jose that saw negative absorption in the third quarter, according to RealPage data (see chart below).

The Richardson, Texas-based research outlet found that 158,000 units were absorbed nationwide in the third quarter, making it the strongest third-quarter performance in the past decade. This translated to an occupancy level of 95.7 percent as of November, which is about on par with the previous all-time high.

Couch said that Atlanta, Charlotte and Tampa each have an occupancy rate of at least 95.5 percent, but tourism-heavy markets in the region such as Orlando and Nashville are down year-over-year at 95 percent and 94.4 percent, respectively. As a result, Orlando and Nashville’s effective asking rents are down at about 3 percent while Atlanta, Charlotte and Tampa are rising steadily, with Tampa’s rents increasing 3.4 percent year-over-year.

Couch made his comments during his keynote address at the 11th annual InterFace Multifamily Southeast show. The two-day conference is typically hosted in Atlanta but took place virtually on Dec. 16 and 17. Couch was joined by his colleague Greg Willett, RealPage’s chief economist, during the opening discussion.

Willett said with multiple vaccines being deployed and a new presidential administration taking office, he’s confident the pandemic will be reigned in at some point in 2021, which will directly benefit the Southeast’s multifamily market.

“No one has lost faith in multifamily’s long-term outlook,” said Willett. “We’re confident moving ahead, and more capital could come into the sector’s direction.”

Couch concurred, saying that institutional, foreign and private investors that were heavily tied to hospitality, retail and office real estate are seeking the stability and yields in the Southeast’s top apartment markets.

The RealPage duo also noted that new multifamily developments remain underway, with approximately 600,000 units in the nation’s development pipeline. In the Southeast, Atlanta has the most supply in the works at 16,653 units, which is the 10th most in the nation. The Southeast market with the most units underway relative to inventory is Nashville at 7.9 percent (12,389 units), followed by Charlotte at 7.3 percent inventory growth (14,227 units).

Willett also said that the suburban migration pattern of new development is only prominent in a handful of metros. With millions of workers potentially returning to their offices in 2021, he said that urban infill development shouldn’t skip a beat.

“Developers are going to be encouraged to keep building in urban environments,” said Willett. “Don’t be surprised if the new vaccines encourage the continuation of the development of downtown towers.”

Strong pent-up demand from investors, lenders
Following Couch and Willett’s keynote address, panelists from Cortland, Goldman Sachs and Greystar gave a peek behind the curtain to share how their firms view the region’s apartment sector from an investment point-of-view.

Like all property classes, multifamily acquisitions were down as a result of the pandemic-induced recession. Real Capital Analytics (RCA) found that multifamily investments sales totaled $105.2 billion year-to-date through November, which is down 37 percent year-over-year.

The panelists said that after hitting the brakes in March and April, strong occupancy, better-than-expected rent collections and rent growth in the Southeast’s top apartment markets encouraged investors to make up for lost time in the second half of 2020. Katie Bloom, managing director of Goldman Sachs, said her firm took advantage as new entrants entered the fray.

“It did feel like a seller’s market in the last half of 2020,” said Bloom. “Groups said that they’re not going to buy hotels or retail, they couldn’t afford to buy industrial and office is hard to pinpoint value. Multifamily was a default. I think that changes at some point in 2021 as other property types recover.”

The panelists also weighed in on the perennial urban versus suburban argument and revealed that both had their advantages. Bloom said that her firm will be building plenty of suburban product for the foreseeable future, and Mike Altman, executive vice president of investments at Cortland, said that his firm is “all in” on the suburbs. Cortland recently purchased a 200-unit apartment community in Cary, a suburb of Raleigh, for $49 million. Altman said the firm is also targeting the northern arch of suburban Atlanta.

“We call it the martini glass,” said Altman, referring to the area of northern Atlanta bounded by Interstates 75 and 85 that includes Cobb County and the north part of Fulton County. “Those are stellar markets. There’s job growth and rental growth in north Atlanta.”

In 2021, the panel said that multifamily will remain a seller’s market but that their firms will be very active buyers. Altman said that Cortland is planning to be net buyers in the new year, and Bloom said Goldman Sachs will be “reluctant sellers” as her firm will have several deliveries in the marketplace.

Sam Moore, senior managing director of Greystar’s Southeast and Central division, said that his company will do a “good bit of both” but will likely end up being net buyers.

“In the United States, we will be close to $2.5 billion in acquisitions and dispose $1 billion to $1.5 billion,” said Moore. “Greystar is also looking to develop and have starts on 30-plus communities across the spectrum, including student housing.”

InterFace Multifamily Southeast’s last full panel discussion on the first day of the virtual conference comprised veteran lenders and mortgage brokers. Like investors and residents, panelists said there is pent-up demand on the debt and equity side as capital sources are looking to deploy funds in the multifamily sector, especially in the Southeast.

“Banks are skating to where the puck is going,” said Hugh Allen, senior vice president and commercial real estate regional director at TD Bank. “The Southeast is going to bode well for new business and new lending. With the migration of people out of the Northeast and relocation of businesses and jobs, the Southeast will be the net beneficiary.”

Lee McNeer, executive director of agency originations at PGIM Real Estate, said that life insurance companies are also aggressively seeking deals in the Southeast, especially for suburban product in the top markets such as Atlanta, Charlotte and Raleigh-Durham.

“Life companies across the board, and really all lenders, are going to be looking more toward [the suburbs] as we move through the 2020s,” said McNeer. “Life companies have come back with a vengeance in the fourth quarter in terms of being competitive with each other and the agencies.”

For 2021, the Mortgage Bankers Association projects that total multifamily originations will reach $305 billion, which would be a marked increase from 2020’s estimated total of $288 billion. While it’s forecasted to be a positive rebound (up 6 percent), the InterFace panelists expect lenders will go above and beyond that amount next year.

“The market is going to be bigger, we’ve already seen a shift of investors that were in the office and retail space start to think that they need to be in the multifamily space,” said Tim DeWispelaere, senior vice president and senior mortgage banker with KeyBank Real Estate Capital. “The equity will continue to flow into multifamily, and alternative debt sources will be here as well. We’ll exceed expectations, and opportunities will abound for everyone.”

 

Full Article: https://rebusinessonline.com/southeast-enjoys-outsized-multifamily-demand-due-to-stellar-job-growth-interface-panelists-concur/

At Corcapa 1031 Advisors, we provide guidance and help investors find the best investments in the marketplace. Contact us today for a review of your real estate portfolio. – (949) 722-1031.

Securities offered through DAI Securities, LLC, Member FINRA/SIPC

Request 1031 Exchange Property Listings

"*" indicates required fields

Name*
Please Confirm You Are An Accredited Investor*

An accredited investor is an individual with a net worth of at least $1,000,000 (excluding the equity in your home) OR net income the last two years of $200,000 or greater ($300,000 if joint income with spouse) with an expectation of equal or greater earnings in the current year.