FEAR OF MISSING OUT ON GROWTH With more companies relocating from high-cost states and more Americans saying “See ya” to massive metro areas, multifamily investors are following them. The AFIRE International Investor Survey, which surveys nearly 200 organizations from 24 countries with roughly $3 trillion assets under management (AUM), found that more than six in 10 respondents expect to increase their investment in tertiary cities in the next three to five years. That number rises to eight in 10 for investment in secondary cities. In 30 years of AFIRE surveys, no tertiary city has ever placed in the top three. But this year, Austin took the number-one position, heralding a noteworthy shift in strategy toward secondary and tertiary markets. Historically, when investors ventured beyond gateway markets, they did so because they were hunting for yield and thought they could find better pricing in secondary and tertiary markets. (It’s worth noting that as of the third quarter 2021, the average price per unit in the six major metros was $297,618 versus $201,125 per unit in non- major metros.) Today, investors are motivated to deploy capital in secondary and tertiary markets because they’re afraid that if they don’t invest in these markets, they’ll miss out on the next decade of income growth and price appreciation. Last year, Austin saw its resident base increase by nearly 67,200 people, or three percent, according to RealPage. This was the strongest percentage growth rate reported among markets with one million or more residents nationwide. During the same period, three smaller markets experienced faster growth than Austin: The Villages, Fla., St. George, Utah, and Myrtle Beach, S.C. recorded rates between 3.4 - 3.9 percent. The total population of those cities is roughly 100,000 to 300,000 residents. Apartment occupancy is tight almost everywhere, according to RealPage. With recent demand so strong, occupancy is 200 basis points to 290 basis points above normal in Austin, Charlotte, Nashville, Raleigh/Durham, Salt Lake City and San Antonio. RECORD-BREAKING DEAL VOLUME This year will likely end with record deal volume in the multifamily sector, according to Real Capital Analytics 3Q2021 U.S. Apartments Capital Trends report. For the first three quarters, deal volume totaled $178.5 billion, which would be a near-record level of activity for a full year. In fact, the $78.7 billion in deal volume for Q3 2021 was higher than the average annual totals from 2008 to 2011, according to Real Capital Analytics. Only in 2018, had
apartment deal volume passed the $50-billion mark in a third quarter. Compared to the same period last year, deal volume was up 192 percent and pricing was up 16.3 percent, according to Real Capital Analytics. The firm attributes the price increase to two main factors: 1) buyers became more optimistic about the economic outlook and were willing to pay more for properties and 2) sellers were also more optimistic and asked for higher sales prices. Non-major markets accounted for $63.2 billion in deal volume during the third quarter, an increase of 209 percent, according to Real Capital Analytics. The total numbers of properties that changed hands in these markets increased 97 percent to 2,038. Of the top 25 markets for apartment investment, all but four experienced record high levels of activity through the first three quarters of 2021. According to Real Capital Analytics, Los Angeles, Chicago, NYC Boroughs, and Washington D.C./Virginia suburbs share a common trait: they usually support urban office hubs. For the first time ever, Manhattan did not make the list of the top 25 apartment markets. The island’s ranking has been steadily declining since 2017 due to rent control regulations among other things. In contrast, several secondary and tertiary markets rank in Real Capital Analytics’ top 25 markets for apartment investment:
• #6 Denver – 100% YOY change • #7 Austin – 146% YOY change • #9 Raleigh-Durham – 134% YOY change • #10 Orlando – 105% YOY change • #11 Tampa – 103% YOY change • #12 Charlotte – 101% YOY change • #15 San Antonio – 131% YOY change • #20 Nashville – 121% YOY change
All markets listed above experienced record YTD total deal volume, according to Real Capital Analytics. And, Raleigh/Durham achieved its highest-ever ranking. •
Joe Fairless is the Co-founder of Ashcroft Capital which has over $1B in assets under management. Joe created the podcast, Best Real Estate Investing Advice Ever Show, which is the longest-running daily real estate podcast in the world and generates over 500,000 monthly downloads. He is also a proud Member of the Texas Tech Alumni Advisor Board for the College of Media and Communication, as well as being recognized as Outstanding Alumni at Texas Tech University, where he is a former Adjunct Professor. He is currently a Junior Achievement Board Member and Volunteer for the Cincinnati chapter and has been recognized by the Junior Achievement’s Free Enterprise Society. Joe volunteers at Crossroads Hospice and was recognized as Multifamily Investor of the Year by Think Realty Magazine.
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