In Albuquerque, New Mexico, the occupancy of more families has increased. Memphis, Tennessee, is recording rising rents and Detroit housing asset ceiling rates have risen sharply.
After several months of pandemics, which eradicated many of the benefits of living in big cities and remote work became a universal reality, tenants moved to some unexpected places. And investors from more families were watching them.
While the initial lock sent wealthier homeowners fleeing from dense cities tenants were also recalibrated for weekend properties in the Hamptons and other houses. This was an advantage for smaller cities, where space is richer and rents are cheaper. Investments in more families, some of which have fled what they see as overly leasing policy in states like California and New York, are beginning to shift their bets accordingly.
They are now looking for assets for more families in much smaller markets. The most popular cities are Memphis and Albuquerque, where rents are lower, but landlords can still expect to increase them every year.
Take The supplier Kushnerwhich extends its reach into the solar belt. The company is making its first apartment acquisition in Memphis and is monitoring other cities in the southeast. It focuses on job growth areas, such as areas near logistics centers, a sector that has performed well in recent months.
Investor dollars also flowed to Detroit and Las Vegas.
Ben Teresa, who teaches real estate financing at Virginia Commonwealth University, said the capital strategy favoring less developed markets is a strategy that is generally seen during recessions.
“It must have happened in the last economic cycle,” he said. “Investors would move to second or third tier markets after the saturation of New York and San Francisco and the cap rates were too low.”
Some of these smaller multi-family markets have even outperformed main metro in the third quarter, according to CBRE. He found that occupancy rates and rental prices had risen in several of these markets – compared to New York, San Francisco and Chicago, where landlords are swinging concessions amid growing job vacancies.
On-demand logistics centers also support these emerging multi-family markets.
“We’re trying to invest where corporations are moving and where housing is available,” said Russell Appel, director of the New York Praedium Group, which paid $ 90 million for a 385-unit apartment building in Phoenix in September. “Rental housing is like a basic service – people need housing.”
Jay Lybik, a Phoenix researcher at Marcus & Millichap, said he noticed much more interest in the Southwest because its proximity to California allows it to attract tenants who leave the country. Detroit has also seen more interest than last year, and cities like Memphis are seeing more interest as companies expand logistics and warehousing centers.
“There are a number of cities in the south-west and south-east that have become strong distribution hubs – investors have seen this trend ahead of Covid and see the continuing trend strengthening,” Lybik said, adding that employees at these distribution hubs have a ‘high propensity to hire’ .
Here are four multi-family markets that are gaining increased investor attention:
Detroit is accelerating
Detroit’s high multi-family real estate rates promise higher returns, said Nick Kirby, director of local Greystone Bel brokerage. He opposed the core urban markets, stating that ceiling rates are so low that a property owner “can break a window and lose money.”
Nevertheless, investors may fear reputational risk. Six years ago, Detroit recovered from the country’s largest urban bankruptcy, with strict financial controls imposed in exchange for cutting part of its debt. The city also has a long history of racial inequality, exacerbated by discriminatory credit practices and disinvestments. As manufacturing jobs disappeared, people ran in the suburbs in the early 1950s.
But during the pandemic, Motor City did surprisingly well. From March to September, net effective rents rose by 3 percent and vacancy fell by 100 basis points, according to CBRE. That contributed to investor interest and gave Kirby a job, he said.
In mid-November, the 64-seater multi-family building, which he said, closed just days after the buyer – a local investment group – completed an on-site inspection.
Investors who are able to move quickly may also have another advantage in Detroit: insufficient access to finance has limited new offerings.
Many long-time, less sophisticated property owners can leave hundreds of thousands of dollars on the table when deciding to sell – which can benefit more savvy or opportunistic investors.
“With existing assets for more families, you can get much higher rates,” Lybik said. But it’s not for every investor, he added.
“Most likely it must be a very unconventional agreement,” he said. “It shuts down a lot of investors – but for those who want to take a little more risk, it’s attractive in the long run.”
Even some larger investors are noticing an increase in demand for affordable housing for more families.
Stuart Boesky, CEO of Pembrook Capital Management, said that after Amazon broke ground in an 823,000-square-foot distribution center where Pontiac Silverdome once stood, the city’s public pension fund approached. He found a lack of accommodation for staff and informed Pembrook of the opportunity.
“It’s definitely a problem,” Boesky said. “Rental housing is needed where these huge technology-oriented distribution centers are located.”
Betting on Sin City
The Las Vegas market benefited from its relative proximity to the expensive and limited Silicon Valley. More affordable housing in Vegas has boomed in recent months, experts say.
According to CBRE, the city had a positive absorption rate of 1.6 percent in the third quarter. Net effective rents also increased and the overall vacancy rate decreased in September compared to March. In Henderson, a suburb 16 miles from the Strip, the absorption rate rose to 4.3 percent. There is an average rent for an apartment of $ 1,300, compared to $ 1,400 nationwide.
Although multi-family rents have fallen 9 percent from pre-Covid levels, rent and occupancy rates have risen, according to Cushman & Wakefield’s third-quarter rent report.
Some recent agreements include Benedict Canyon Realty’s acquisition of a 98-apartment luxury apartment complex at 10620 West Alexander Road in July for $ 21 million. JB Partners, a private equity firm, acquired Tower at Tropicana at 6,575 W. Tropicana Avenue in August and Gloria Park Villas at 3,625 South Decatur Boulevard – not far from the Strip – for $ 82.5 million. The price rose from $ 62.5 million in 2017, when assets were last traded, public records show.
John Tippins, CEO of Northcap Brokerage, said he saw an increase in tenants from Silicon Valley and the San Francisco and Oakland areas.
“We’ve done a few case studies of people working in big technology companies who pay $ 4,500 or $ 6,000 for one bedroom,” Tippins said. “Here you can stay in the nicest house or apartment with three bedrooms or 3.5 bedrooms for $ 2,500 a month.”
Albuquerque is lit.
In May, when Gov. Michelle Lujan Grisham reduced university occupancy across the state, homeowners saw demand for their product. In a desperate attempt to dig up, the students poured into the surrounding properties, which increased the occupancy of double-digit numbers.
At the same time, multi-family broker Todd Clarke of NM Apartment Advisors said that investors from offshore markets – frustrated by restrictions in dense urban areas – are calling to move their families and capital.
The payout may be significant in Albuquerque, where the average ceiling rate is 6.62 percent, according to Colliers International’s multi-family report for the third quarter. This follows a report from the second quarter – from CBRE – which found that the vacancy rate in Albuquerque had fallen, while effective rents had risen slightly.
A August survey by the moving company Hire a Helper showed that New Mexico’s net population grew by 44 percent. According to the survey, it was the second highest percentage nationwide during the pandemic, in line with Albuquerque’s recent behavior in the multi-family market, Clarke said.
“Property managers tell us that occupancy is very limited,” he said. “In some neighborhoods, we’re also seeing a double-digit increase in rents.”
Even with the increase in rent, those who come from more expensive cities may be surprised to find that the average monthly rent in Albuquerque is only $ 900. This is a strong motivator for technology workers freed from their offices in Silicon Valley.
Tech giants began to notice. Facebook opened the first building in its data center in Los Lunas, a suburb south of Albuquerque, in 2019. Amazon is building a 465,000-square-foot filling center and Netflix has bought production studio at the center for $ 31 million in 2018; included a generous incentive package from the city and state.
“I feel bad telling people that our business is thriving and doing so well,” Clarke said. “But if you live in Silicon Valley and you have to rent your neighbor ‘s dog to have a legitimate reason to go out – to the wide open space, to the Wild West and to golf, hiking and biking, which are by no means limited to wearing a mask or you stay at a social distance – it looks super attractive. “
A little more action in Memphis
According to CBRE, effective rents in Memphis in the second quarter actually increased.
In October, Kushner Companies – whose portfolio of 20,000-unit apartments dominates the East Coast – was approximately $ 31 million for a 256-unit apartment complex in the Cordova neighborhood.
Kushner’s Riley Wilson, who led the acquisition, said the company’s interest was drawn to the strong fundamentals of the Memphis market – diversified demographics, an educated workforce and a continuing supply of jobs.
“We plan to continue to grow in these dynamic cities and build on a large scale over the next few months throughout the Southeast,” he said.
The Memphis area is also receiving support from industrial growth. Amazon has said it will open its sixth fulfillment center this year in West Tennessee with a warehouse area of 855,000 square feet. Memphis-based FedEx reported a 20 percent increase in revenue in the third quarter, the Memphis Business Journal said, mainly due to an increase in online shopping caused by the pandemic.
The expansion of the logistics space has also led to the creation of jobs – mostly low-paying but stable.
“It’s very good for the lending market – a lot of the people who will be there will be tenants,” said Steve Woodyard, CEO of Woodyard Realty Brokerage. “The affordable housing side really benefits.”
Of the 20 multi-family assets he said in Memphis, 15 are under contract – and he expected the other three to follow in a matter of days.
And while New York and California have both recently tightened existing limits on how many landlords may increase rents“Memphis does not have such a policy – at least not yet.
“We’re getting a flood of investors from New York and New Jersey due to rent controls and recent changes in the legislation they have,” Woodyard said. “They’re afraid they can’t maintain their buildings, and the rent isn’t catching up.”