From where apartment investors are seeing the best opportunities to what is causing a bidding war between private investors and institutional players, here are four trends Atlanta's capital markets will be experiencing this year.
1. Lower-Rent Apartment Opportunities
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Investors have been chasing the apartment market downstream in recent months, seeking Class-B and C assets that can be rehabilitated and see a rental rate upside, Hunt Mortgage Group vice president Keith Morris said.
“I'm looking at a portfolio of C, B assets where the investment group wants to buy them, rehab them … and up-class the properties and hopefully raise rents about 3 to 5%,” Morris said.
Morris, among a panel of debt and equity experts at Bisnow's Atlanta Capital Markets & Real Estate Finance event Wednesday morning, said these deals allow investors to hedge against rising interest rates.
2. Investors Love Leases With Rate Bumps
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When it comes to properties with net leases, Britton Burdette with Stan Johnson Co. said those leases with periodic rent bumps are attracting a premium from investors as a hedge against rising Treasury rates and the potential for inflation.
“We're pushing hard in trying to get annual escalators,” Burdette said. "They're paying off more today than they have in the past."
He noted that deal activity for net-leased properties — those properties where the tenant picks up the tab for operating expenses — has picked up to levels not seen since a high-water mark of 2015 so far this year.
“We're heading, despite interest rates going up, into a pretty robust market,” he said.
3. The Net-Lease Battlefield
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Burdette said, with net-lease facilities acting more like bond investments since investors can be relatively hands off, it has led to an influx of private capital, especially from 1031 exchanges, seeking buying opportunities. And it is competing with a lot of REITs already seeking those investments, and bidding up prices.
“Even if it's a $50M, $70M deal, there's still private money out there competing for it,” Burdette said.
Sheer demand for those properties is trumping any other concerns, including interest rate hikes, which is keeping cap rates low, Stan Johnson Co. regional director Joey Odom said.
4. Fundamentals Make Buying A Gamble
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The fundamentals for most product types in Atlanta have been so strong, it has created a “stampede of capital [that] has pushed values very high,” Ackerman & Co. president Kris Miller said. That has made the firm hesitant to buy properties at some market rates, even focusing on land investments, including land that does not yet have entitlements for future investments.
The firm is targeting some $200M in investments this year, including up to $100M in shallow bay industrial property buys.
“In the 30 years I've been doing this, the fundamental balance between supply and demand has never been stronger,” Miller said.
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