ATLANTA, GA - In Atlanta’s hottest submarkets, the multifamily tides are changing. Many emerging neighborhoods, especially located around the Atlanta BeltLine loop, are experiencing a surge of demand for apartments, leading developers to scramble to bring shiny new luxury product to the market. Looking at the state of the market, with flourishing development from food halls to skyscrapers and major corporate relocations, it’s no surprise that 15,300 new units came online last year, many of them with high prices and outlandish amenities.
The issue with these projects is that while demand is strong for apartments, not everyone can handle the exorbitant price tag that comes with floor-to-ceiling windows, gated BeltLine access and swanky dog parks. And not every developer wants to build a new apartment project from the ground up. At Franklin Street, we’ve turned our gaze on value-add multifamily properties in hot submarkets. These projects, usually built in the 1950s or 1960s, are often outdated but provide affordable rents and a smart investment opportunity in a location that’s blossoming around them, making them a strong value add for several reasons.
1) Limited inventory in key submarkets
A good example of a prime value add asset is the Ponce Student Suites on Ponce De Leon Avenue next to the Ponce City Market, the largest adaptive reuse project in Atlanta’s history. It’s a dense, high-traffic area with limited potential land for development, and new retail, office and multifamily projects are already going up all around the small, long-standing asset.
Currently, within one mile of Ponce Student Suites, the population is expected to grow by nearly 2,000 in the next five years and nearby universities – Georgia State, Georgia Tech, Emory and more – are all growing and most of their enrollees live off-campus, creating a smart buy for the right investor.
2) High occupancy rates
In their current, outdated states, these assets are already almost totally occupied thanks to the popularity of the submarkets and intown living. We looked at the occupancy rates of Maple Place Apartments, a value-add property we’re marketing, and 10 comparable properties in Poncey-Highland, Old Fourth Ward and Inman Park. All but two are above 90-percent occupied, with four 100-percent leased. This shows investors there is already a strong interest in this product and an opportunity for cash flow increases for years to come.
3) Demand for rentals
It sounds cliché but the fact is many millennials, also known as Generation Y, still live with their parents. Millennials are struggling to afford homes and are renting until they’re much older than their parents were when they traded in their apartments for houses.
In Atlanta, multifamily occupancy is at 95.3 percent and rents are on the rise; average rent growth went from a 2.6 percent average in 2012 up to 7.6 percent by mid-2015. Supply is trying to catch up with demand, mostly in the form of luxury apartments, but for the foreseeable future, multifamily assets are highly valuable in this market.
4) Renovations are a less risky investment than teardowns
A buyer for a value-add property has a few options once they acquire the asset. They can demolish the existing structure and build a new product, like what’s happening with the Oak Knoll apartments on Piedmont Road and what has happened all over town with surface parking lots and other outdated uses.
However, a project like Ponce Student Suites, which sits right next to Ponce City Market, one of the city’s most impressive examples of a successful facelift, could benefit from a renovation. This is a less risky investment for the owners and will ensure profit from the asset by raising rents to match the upgrades. The apartments here don’t currently have kitchens, as they have been previously marketed to students as dorm-like living. However, a savvy buyer could install kitchenettes and up their income potential without having to invest in a major overhaul.
5) Atlanta is a top bet for investors
Atlanta is literally a hot bet now – we’re favored 2-to-1 to win Amazon’s second headquarters – and an active area for investment. In particular, Franklin Street is seeing investors eyeing submarkets in and around the BeltLine trail, both the east and west portions, and these forlorn properties suddenly generating interest because of their location at the heart of a bustling, vibrant neighborhood.
So, as housing prices rise and people move to the city, value-add multifamily assets will continue to be a smart bet for investors who can market them to the 9,900 residents who moved to Atlanta in the past year, as well as to millennials putting off home buying. It’s a win-win scenario and benefits the whole neighborhood when an investor puts time and money into a formerly outdated asset.
ABOUT THE AUTHORS
Jake Reid is senior director at Franklin Street Real Estate Services, specializing in multifamily brokerage with a focus on properties around Atlanta’s in-town market and throughout Georgia. Reach him at jake.reid@franklinst.com and (404) 832-1250, ext. 404.
Roger Schoerner is an associate at Franklin Street Real Estate Services, specializing in multifamily brokerage with a focus on properties around Atlanta’s in-town market and throughout Georgia. Reach him at roger.schoerner@franklinst.com and (404) 832-1250, ext. 410.
About Franklin Street: Celebrating more than 10 years in the business, Franklin Street is a family of full-service commercial real estate companies focused on delivering value-add solutions to meet the evolving needs of clients. Through a collaborative philosophy of leveraging the resources, expertise and experience of each of its divisions – Real Estate, Capital, Insurance, Management and Valuation – Franklin Street offers unmatched value and optimal solutions for clients nationwide. Learn more about Franklin Street at FranklinSt.com