Investors On 'Crazy' Atlanta Apartment Shopping Spree
Investors are back on a multifamily buying spree as the Atlanta area emerges from the coronavirus pandemic.
During the first quarter, investors bought more than $2.1B of Atlanta apartments, an 18% increase from the same period in 2020, according to data collected by Real Capital Analytics, which tracked transactions of $5M or more. The data was provided to Bisnow by JLL.
“I think there's a tremendous amount of activity for not just multifamily, but that is probably leading the way,” Marcus & Millichap First Vice President John Leonard said. “Anything that did well during the pandemic is in high demand.”
Even though developers are adding an additional 18,900 new apartment units in Metro Atlanta, investors continue to push up sales prices, with average apartment pricing rising 12% last year to $136,500 per unit, according to a recent Marcus & Millichap report.
Atlanta apartment fundamentals have held up well, which has been a lure for investors.
The average vacancy rate was 4.5% by the end of the first quarter, essentially flat from the third quarter of 2019, which Marcus & Millichap described as this cycle's low point.
Vacancy has been held down by an influx of residents moving from the Midwest and the Northeast, according to Marcus & Millichap, and average apartment rents rose in Atlanta last year to $1,302 per month. Those factors “enabled investors to establish valuations more rapidly in the Atlanta metro than the nation as a whole,” according to the report.
Investor demand is pushing capitalization rates down even further, CBRE Executive Vice President Shea Campbell said. Whereas the typical apartment sale would see cap rates between 4.25% and 4.5% in previous months, caps are now compressing to lows of 3.5% and 4%.
While cap rates in Gateway cities like New York, Chicago and LA remain more compressed on average, Campbell said Atlanta cap rates are getting closer to those benchmarks.
“Today we're talking about cap rates pushing into the mid to upper 3s, there's not much difference," he said.
“Oh my God, it's crazy,” said Rod Mullice, an apartment and condominium developer in Atlanta, when asked about the apartment investment sales market.
Mullice, who heads up Windsor Stevens Holdings, recently sold the 109-unit The Pad on Harvard apartment complex in College Park. Mullice declined to identify the buyer, but real estate transaction tracking firm Databank reports Bayshore Investment Partners out of Florida purchased the property for $20M.
Mullice first put The Pad on the market in January 2020. Marketing efforts stalled with the onset of the pandemic, but by the third quarter, after he was able to maintain occupancy at 98% with only two delinquent renters throughout the depths of the pandemic, Mullice said he quickly found a buyer as sources of capital set their sights on the multifamily asset class.
“I believe for the institutional buyers, retail is off-limits right now,” he said. "Hotels are kryptonite, and office is only trading with the best possible properties and only in the best submarkets.
CBRE recently saw that preference in a survey it conducted of 150 real estate investors, of which 66% said they were focused on buying industrial and multifamily properties.
"The amount of money flowing out of other asset classes, that is just creating a bigger wave into our asset class,” Campbell said.
Four major sales were announced last week alone. GID Investment Advisors purchased Elevate West Village, a 313-unit, Class-A apartment complex in Cobb County, for $96.5M from Branch Properties. California-based CWS Capital Partners purchased Perimeter 31, a 416-unit property in Central Perimeter, for $98.75M from PRP.
Lion Real Estate Group, which made its first Metro Atlanta investment last year, purchased Collier Ridge, a 300-unit apartment complex in Buckhead for $67M. While Lion didn't disclose the seller, the last listed owner is Collier Ridge Apartments Holdings, which has the same address as Atlanta property management firm First Communities Management, according to Reonomy.
New York-based Spaxel debuted in the Atlanta market with the $45M purchase of the Hills at East Cobb in Marietta, it announced last Tuesday. The 268-unit property at 1716 Terrell Mill Road — just a mile and a half from The Battery at Truist Park — was sold by DE Pennington Pointe Apartments LLC.
Metro Atlanta's 18% increase in transaction volume stands in stark contrast to the drops seen in other markets in the first quarter, including a 38% drop in sales in Dallas-Fort Worth and a 70% drop in sales in New York. Other markets experienced strong sales growth, including a 20% jump in sales in Charlotte, 19% in Austin and 83% in Phoenix. Arizona has been a magnet for residents leaving California in the past year.
Apartment investors also are following businesses into the Sun Belt. Microsoft, Airbnb, Papa John's and Adecco all announced plans to open major regional offices or headquarters in the Atlanta area, adding new jobs to the economy. New jobs are the strongest indicator to investors that they can bank on new apartment renters.
“It's a pro-business state. It's easy to do business here, and I think people are optimistic that additional jobs could come here and you're not concerned about extreme government measures that would hinder your operations,” The RADCO Cos. Vice President of Capital Markets Lisa Hurd said. “I think something drastic would have to happen to chase the capital away.”
Mullice said apartment investors also are attracted to Atlanta's higher education base, which includes universities and colleges like Kennesaw State University, Georgia Tech, Georgia State University, Spelman College, Morehouse College and a host of smaller schools.
“The secret of Atlanta is that we start at 20,000 freshmen every year,” he said. “That's a huge advantage over any other metro area in the Southeast. We're keeping the students. We're keeping the talent.”