Moving into the new year, our team always reviews market dynamics to determine where we will be spending most of our time acquiring new multifamily assets. We also take some time to consider adding alternative investments to our investment offerings.
In June 2020, we added an alternative investment vehicle through our real estate debt fund which many of you have already taken advantage of with $10mil+ placed into the fund and 90+ private loans dispersed in the first 6 months. In 2021 we will be looking to add other alternative investments to our portfolio.
Below, I will be discussing the outlook for multifamily in general and revealing the additional markets where we will be expanding our footprint.
Outlook for Multifamily in 2021
According to CoStar, multifamily rent growth across the nation in 2020 was essentially flat with only about a 1% drop since mid-March. The national average rent growth is obscured by the growing number of people moving from urban, downtown areas to suburban areas.
The greatest impact in negative rent growth has been in the gateway downtown rents with a national average being down 5% since mid-March. The cities with the largest declines in rent growth have been the more expensive metros with the top two being San Jose, CA and San Francisco, CA.
The more affordable suburban assets have seen an uptick in rent growth due to people moving away from large city-centers and working from home. The more resilient markets topping this list are Phoenix, Atlanta, Austin, and Charlotte.
2021 will be an interesting year and I suspect that this trend of people moving away from downtown areas into suburban areas will continue. However, I do not think this will last more than about 6-9 months as these more
expensive assets will reduce rents and provide concessions to lure people back to their assets for the long term.
Overall, the pricing for multifamily assets was only down 1-2% nationally. CoStar Capital Markets report indicates that there will be another 5% drop in prices in 2021. This drop in pricing is primarily projected to occur in the higher-priced deals which did not trade in 2020. Assets with the strongest demands and posting rent growth will likely see prices rise.
Opinion of Current Apartment Pricing
According to the Emerging Trends in Real Estate 2021 survey, you can see in figure 1 that most buyers and sellers feel like the current apartment asset pricing is fairly priced except in the assets that have been hit worst since the pandemic started in mid-March. These overpriced assets are the student housing, high-income apartments, and senior housing.
Trends in Different Apartment Types
You can see in figure 2 and figure 3 the results of the apartment buy/hold/sell recommendations and prospect trends among buyers and sellers from the Emerging Trends in Real Estate 2021 survey.
As with the over-priced assets, student housing, high-income apartments, and senior housing, these are also at the bottom of the “buy” or “sell” category and should be in a holding pattern for now.
The moderate-income apartments are where you see a large trend towards “buy” signals with a trajectory away from the lower-income apartments. PassiveInvesting.com primarily acquires assets in this moderate-income category and will continue into 2021. We stay away from the lower-income apartments and you should avoid in your portfolio right now too.
The Great American Move
According to U-Haul moving trends, people are leaving expensive areas like coastal California and the Northeast in
droves. They are moving to the coastal Southeast, Florida, Phoenix, and the Big Southern markets like Charlotte, Atlanta, Raleigh-Durham, Jacksonville, and Tampa.
Boise, Austin, Raleigh-Durham, and Salt Lake City are seeing an influx of people from Silicon Valley to more affordable tech markets as the work-from-home trend is here to stay.
According to a recent survey, 42.7% of experts believe that businesses and residents will move away from areas with higher density.
Expanding Our Multifamily Market Focus
In 2020, we focused our acquisitions in the Carolinas and acquired assets in the Raleigh-Durham, NC MSA and Charlotte, NC MSA.
However, as we move into a new year, we are refocusing our efforts to add two more markets: Tampa, FL, and Phoenix, AZ. This is in addition to Atlanta, GA and Jacksonville, FL where we have been searching for and submitting offers for quality multifamily assets for over a year.
Tampa, FL has seen minimal impact from the pandemic boasting a 4.1% rent growth and 6.3% vacancy rate across the metro with a projected 5-year annual population growth rate of 2.9%.
Phoenix, AZ proved resilient since the beginning of the pandemic with a 4.5% rent growth and 6.3% vacancy across the metro with a projected 5-year annual population growth rate of 3.0%.
Even though we are adding markets to our search, this does not mean that we are no longer searching in the Carolinas. We will still be searching for assets in the Carolinas, as usual, looking in Charlotte, NC, Raleigh, NC, Greenville, SC, and Charleston, SC (3.6%, 3.7%, 2.3%, and 3.0% 5-year projected population growth respectively).