Real estate investors head south and bid on Sunbelt apartment buildings

Real estate investors across the United States are betting heavily on apartment buildings in the South and Southwest, continuing population growth and soaring rents that they believe will continue to outpace inflation this year.

The owners say they are following the migration patterns of workers and their employers, who have moved to Florida, Texas and other southern states during the pandemic. These states’ warm climate, business-friendly governments and laws, lower taxes and fewer regulations have attracted businesses and workers from California, the Northeast and other corners of the country.

Foreign funds have come for the trip, supporting investments in thousands of apartments in major Sunbelt markets like Atlanta, but also in places like Lafayette, Louisiana’s fourth-largest city.

Investors poured a record $335.3 billion into apartments across the country in 2021. Nearly a quarter of that went to just four Sunbelt metro areas: Dallas, Atlanta, Phoenix and Houston . In some other Sunbelt cities, total multifamily investment more than doubled from a year earlier, according to a report by real estate firm CBRE Group. Inc.

Buyers are closing an unusually high number of deals for properties that weren’t listed for sale, investors said. The appetite to capitalize on rapidly rising rents far outweighs the number of assets available for purchase.

“We get unsolicited offers all the time,” said Kip Sowden, managing director of Dallas owner and developer RREAF Holdings. Mr Sowden said his company had sold around $400m worth of apartments in 2021, with around 60% of that it had no plans to sell. Many of those buyers come from the northeast and west coast, Mr. Sowden said.

Big buyers include northeast property owners like Pennsylvania-based Morgan Properties, which teamed up with the U.S. arm of Saudi-based Olayan Group to buy a $1.75 billion portfolio last year consisting mostly of of Sunbelt apartments. The purchases included nearly 2,000 middle-income units in Tampa, where rent increases on new leases are now up to 30%, according to Jonathan Morgan, president of the company.

Mr Morgan said rising wages, including demand for higher-paying workers moving to Florida and looking for apartments, fueled those gains. Before the pandemic, less than 2% of the company’s holdings were in the Sunbelt. Now it’s 20%, he said.

New York’s RXR Realty said it had also scooped up off-market properties, investing in two apartment buildings under construction in downtown Phoenix, the company’s first transactions in the Sunbelt in many years. The city’s expansion of college campuses and medical facilities that attract knowledge workers, along with new investments in transportation infrastructure, have made Phoenix an attractive bet, said Scott Rechler, president and CEO of RXR. .

The frenzy in the multifamily market intensifies worries about affordability, which were already present before the pandemic investment boom. Tampa lawmakers have begun discussing the possibility of rent control. Earlier this month, the US Senate Banking Committee held a hearing to discuss the effects of institutional investors on housing affordability, including in Sunbelt states.

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But for now, there seems to be little threat to these billions of new investments.

“Rent growth has been so explosive,” said Tal Peri, head of the East Coast and Latin America division of German fund manager Union Investment Real Estate GmbH. The company entered the US multifamily market late last year, buying high-end rentals in Fort Lauderdale. The company is already pumping rents on lease renewals by 13%.

Write to Will Parker at [email protected]

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Appeared in the February 16, 2022 print edition as “Landlords Head Southward To Buy Apartment Buildings”.

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