• Assets available for acquisition are now seeing two or three well-qualified buyers
• The election made many nervous but investors remain on track with future deals
• Due to rent increases, renovations to older properties are slowing
• Secondary markets are showing the best ROI and opportunity going forward
• Aging B-Grade properties with obsolete amenities are a target for many investors
• Many deals are guaranteeing interest rate hikes with split risk agreements
ATLANTA, Georgia – At The Second Annual Southeast Apartment Summit, more than 250 real estate professionals and leaders convened to discuss the important trends and topics concerning multifamily apartment development in the southeast. Some 40 speakers participated in high-level discussion panels at the premier industry event which was held at the Georgia Aquarium.
Among the conference’s many panels was an investor roundtable, which addressed the middle market, private capital, and deal discovery techniques. The roundtable included John Bennett, Senior Vice President at Ambling; Ben Colonomos, Principal of PointOne Holdings; Andy Green, Vice President at TriBridge Residential; Karim N Kanji, President and CEO of Sutter Hill Group of Companies; Ryan Knapp, Co-Founder, Co-Managing Principal at Middle Street Partners; and Eric Weiss, Partner at Schulten Ward Turner & Weiss, LLP. The roundtable was moderated by John Sebree, National Director of Multihousing at Marcus & Millichap.
The roundtable began with John Sebree, National Director of Multihousing at Marcus & Millichap, asking the group about private capital. Ben Colonomos, Principal of PointOne Holdings, began by exposing that less-sophisticated buyers in the market are bidding much higher prices than more experienced players in the field. Andy Green, Vice President at TriBridge Residential, agreed, explaining that, depending on the deal, seller expectations are not meshing with buyer goals. With the exception of properties with good locations, many properties are seeing only two or three well-qualified buyers who know the markets well, said Green. Ryan Knapp, Co-Founder, Co-Managing Principal at Middle Street Partners, said his team remains yield-focused, but cap rates are becoming very sticky. In certain markets, Knapp must be very rate-sensitive, but he agreed that buyer and sellers are not always synchronized with expectations on the asking price of certain properties.
As the discussion moved to foreign investment, the panel addressed how the U.S. market appears to foreign investors. Green said that foreign investment is very prevalent right now in virtually all deals. He explained the recent election caused many around the world to question the direction of real estate investing in the US. The election made many nervous, according to Green, but for the most part, investors have pledged to remain on track with current and future deals. Knapp added that his investors are primarily based in Latin America, and regardless of the recent election, his investors appreciate America’s rule of law when it comes to stabilizing the markets. Because of this, his clients are generally unshaken by the election as America’s foundation in principals and laws remain strong and intact.
John Bennett, Senior Vice President at Ambling, was asked about the secondary markets and the opportunities in the south for these markets. Bennet explained that most of his properties are in secondary markets. He sees huge value-add opportunities in these markets, especially with options to refinance properties, taking advantage of low-interest rates. Now, he is seeing many rents on the rise, which is in turn adding to the capital required to start renovations or adding amenities. Ben Colonomos, Principal of PointOne Holdings, said that many of his company’s recent acquisitions, which they had been planning on renovating, are actually remaining as-is due to the organic rent growth in tertiary markets. Knapp agreed, explaining that rents are increasing and there has been no overwhelming reason to renovate, especially in liTech deals. Eric Weiss, Partner at Schulten Ward Turner & Weiss, LLP, concurred and added that many properties that were acquired more than 15 years ago can now be refinanced with much better interest rates, creating a huge jump in capital increase for the owners.
Weiss was then asked by Sebree about buyer attitudes in the secondary markets. Weiss asserted that fear of interest rate increases is starting to show in the buyers’ attitudes when negotiating properties. Karim N Kanji, President and CEO of Sutter Hill Group of Companies, said that once the buyer and seller are in the transaction, splitting the risk of an interest rate hike is acceptable.
On the topic of upgrading properties and the advantages/disadvantages of doing so, Knapp said that it is definitely better to try upgrading a B grade property to a B+ rather than working with C grade opportunities. Green thinks that focusing on deal structure is more important than looking to upgrade and sell a property. He said that most of his deals are held for 15 years and structured accordingly so that they do not have to concern themselves with upgrading properties. Colonomos said his company looks for aging B grade properties with obsolete amenities. They invest in modernizing the properties and plan to hold the asset for seven to ten years.
Knapp was then asked about sourcing capital, and where the majority of his investors reside. He explained that on the development side, institutional investors have played a larger part in deals, but on the investment and acquisition side, individual investors are more cooperative. This is particularly true on the construction finance side, where boutique developers are seeing more opportunities now than in the past, said Knapp. Bennet added that they see all acquisitions as an opportunity for redevelopment and repositioning of b-grade, secondary markets. Bennet explained that the lack of competition in these markets makes finding and securing deals much easier than those in Atlanta or other primary metropolitan markets.
Sebree then asked Weiss to discuss the small, family-based investors and how they play a role in acquiring and holding properties today. Weiss said that many of the smaller family-owned investors tend to be very consistent when it comes to negotiations, and becoming familiar with their comfort level creates a pattern which all partners prepare for from the beginning.