This is one of the most common questions I get asked, and while it may seem straightforward on the surface, it’s important to dig into “the question behind the question.”
So – what markets are we focused on?
North Carolina – Raleigh/Durham/Chapel Hill – “The Triangle”, Charlotte
South Carolina – Greenville, Charleston
Georgia – Atlanta
Florida – Jacksonville, Tampa, Orlando, Ft Myers
Texas – Dallas, Houston, Austin
Arizona – Phoenix
We like markets that hit these criteria:
1) Strong & Diversified Employment Base
2) Job and Population Growth
3) Demand outpacing supply
Strong and Diversified Employment Base
We focus on markets that have many blue-chip Fortune 500 corporations that are consistently adding jobs. If you’ve followed us for any length of time, you know “The Triangle” (Raleigh/Durham/Chapel Hill) is a favorite market of ours. We own two assets there and plan to acquire more. One of the key reasons we’ve honed in on this market is the quantity and diversity of the large companies and institutions. To name a few: Duke Health Systems; IBM; SAS Institute; Cisco Systems; Blue Cross and Blue Shield; Pfizer; Fidelity; Verizon.
You’ll see similar employment statistics in all our key markets.
The above criteria are, generally, a prerequisite for population growth. People need jobs, and even in a Covid type environment, there is still a significant benefit, and often a necessity, to live close to where you work. But more than jobs drive population growth. Ohio is a great example of this. It’s a very business-friendly state and boasts a number of strong employers. That said, you don’t hear about people moving to Cleveland or Columbus in droves. In last month’s newsletter, Brandon highlighted the Austin market. It’s a perfect example of a place a lot of people want to live in. Culture, cost of living, weather, and incredible barbeque are just a few of the reasons people are flocking to Austin. All of our target markets have an “it factor” that is driving consistent population growth.
Demand Outpacing Supply
This requires little explanation, but we like to operate in markets where this is occurring. The Riverside Flats at Aberfoyle Village property we purchased in the Belmont area of Charlotte in December is a perfect example. In that submarket, there is very strong population & job growth occurring and projected. Seven thousand new residents are expected in the next few years, and only 565 proposed units being delivered in the foreseeable future. This is an 8:1 population to supply ratio. This, of course, results in high occupancy, low concessions, and strong year-over-year rent growth. We look for submarkets and properties that have these kinds of favorable metrics.
Socrates was famous for asking why three times – things didn’t end well for him, so we’ll ask it twice instead.
Why are we focused on markets that hit those criteria?
You may be familiar with the term risk-adjusted returns (or cycle resilient investments). That’s what we aim to acquire and what we plan to deliver to you. What makes these opportunities risk-adjusted or cycle resilient? You guessed it, the markets. When there is a downturn in the market, class A & B+ assets in markets with strong fundamentals like those listed above tend to hold their value compared to weaker markets that are dependent on one employer, one industry, or are decreasing in population. When we look to purchase an asset in a market, we dive deep into the data to see how that asset performed during the last down cycle.
While we don’t have a crystal ball that looks into the future, the historical performance of asset classes, markets, submarkets, and even specific assets can give us a sense of what will happen in a future down cycle. Strong markets fare better, are far less volatile, and recover faster. And that’s WHY we focus on the markets we do.