Opportunities Are on the Horizon: Atlantic Pacific COO

Brett Duke on how market volatility is shaping multifamily strategy for the next 12 to 18 months.

Brett Duke

Brett Duke, COO, Atlantic Pacific Real Estate Group. Image courtesy of Atlantic Pacific Cos.

Multifamily rent development started slowing down in the last quarter of 2022 following two years of record gains. But demand remains high across the U.S., with competitivity for multifamily increasing in sought-after markets.

“The Sun Belt states have been the beneficiary of significant job growth and net in-migration for the past several years,” Brett Duke, chief operating officer at Atlantic Pacific Real Estate Group, told Multi-Housing News.

With more than 15 years of experience, Duke oversees Atlantic Pacific Cos.’ Investment Management division, which includes the asset management, property management, management systems, accounting, and construction management of the company’s market-rate and affordable portfolios. We asked Duke to share his views on what’s to come for Sun Belt multifamily operators, considering the current economic uncertainty.

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How have these past couple of years shaped your business strategy for the future?

Duke: These past couple years have been challenging for our industry and especially for our onsite teams. Between the pandemic, labor shortage, an eviction moratorium, inflation, to name a few, our teams throughout the organization have done a remarkable job serving our residents and operating our properties through uncharted waters.

The past couple of years have shaped and refined our business strategy to focus on finding and retaining the best people and preparing them to lead our company into the future, and leveraging technology to enhance our residents’ experiences and our teams’ capabilities. We’ve also been focusing on thoughtfully and aggressively executing each property’s business plan while accounting for the macro and local conditions that exist.

From your experience, what are owners expecting from property managers today, given the current volatile economic environment?

Duke: From my experience, owners today are expecting execution, insight and flexibility from their property managers. For execution, owners are looking for property managers who can consistently run a property efficiently despite the previously mentioned challenges including the tight labor market for both onsite teams and our third-party vendors, elongated eviction timelines, etc.

Regarding insight, owners expect property managers to not only know their local market and comps, but to also recognize the macro trends that are affecting the industry and how to harness those trends in a way that results in successful outcomes for their particular property. Finally, owners expect flexibility where property managers can nimbly shift their focus and strategy in response to the rapidly changing market conditions.

How are property managers coping with the high inflation environment that the economy is currently in? 

Atlantic Buckhead

The Atlantic Buckhead, a 301-unit community in Atlanta acquired by Atlantic Pacific Cos. in 2022 through its third private equity fund, Blue Atlantic Partners Fund III. Image courtesy of Atlantic Pacific Cos.

Duke: For teams like ours, it creates a unique opportunity to stand out from the crowd. It has created the opportunity for us to roll up our sleeves and really understand which expense line items can benefit most from advanced technology options, creating a better path to scale and maximize savings. Examples of this include further automation of the applicant and resident experience, real-time utility monitoring, consolidation of service contracts under select vendors, among many others.

Atlantic Pacific Cos. manages nearly 19,000 units across several major metro areas. Are you focusing on any specific markets in 2023?

Duke: Our focus continues to be on the major Sun Belt markets. We intend to grow our portfolio in all the markets where we have a presence, with additional emphasis on growing within Georgia, Texas, North Carolina and Florida.

Ongoing interest rate hikes have resulted in debt becoming more expensive and less available. To what extent has this issue impacted Atlantic’s development and new acquisitions plans?

Duke: The rising cost of debt has had a significant impact on our development and acquisition pipelines.  Given construction costs and property values today, this additional expense makes new projects significantly more difficult to underwrite. Specifically for acquisitions, we continue to be in a period of price discovery as both buyers and sellers adjust their expectations based on current capitalization and interest rates.

For the near term, we expect continued stress as it relates to acquisitions. However, we anticipate a significant opportunity on the horizon as those owners who historically relied on floating-rate debt will likely need to consider a disposition strategy that doesn’t necessarily align with their original business plan, forcing more assets to market. Our Blue Atlantic Fund 4 will be deployed over the next 12 to 18 months, taking advantage of this unique dislocation in the marketplace.

Where do you expect cap rates to go this year? 

Duke: Acquiring a property today on a leveraged basis at a seller’s cap rate expectation will, more than likely, result in negative leverage for the buyer. With rent growth slowing and expense inflation still present, the period of negative leverage a buyer must endure may be more than the proforma can handle. Unless interest rates come down some or lenders reduce spreads, I suspect cap rates will tick up slightly from sellers’ current expectations.

Can you share some details about rent and occupancy performance across your portfolio in the past 12 months?

Duke: Beginning around the fourth quarter of 2022, we began seeing a slowdown in the historically high rent growth we were achieving, followed closely by a gradual increase in vacancy. Both of those trends have continued across our portfolio in the Sun Belt. Interestingly, these trends are more pronounced in our urban properties. Ultimately, our overall NOI continues to increase due, in part, to our new initiatives and technological advances.

Multifamily markets in the Sun Belt have been on a hot streak for quite a while. Are you expecting any changes this year?

Duke: Although there may be a slight return to historical growth in these markets, the low income-tax and pro-growth environment created by community and governmental leaders will continue to propel the upward trajectory of these markets which ultimately creates the outsized demand for multifamily.

Atlantic recently broke ground on Atlantic Station—hailed as the largest single-phase, transit-oriented development in Miami-Dade County. Please tell us a bit about how this project came to be and why you expect it to be successful.

Atlantic Station rendering

Atlantic Station rendering. Image courtesy of Atlantic Pacific Cos.

Duke: Atlantic Station combines two of Atlantic’s passions: transit-oriented development and mixed-income development. Atlantic Station is being constructed in partnership with Miami-Dade County’s Department of Transit and Public Works. The 36-story development is being built adjacent to the most significant transit node in Florida, where the Metrorail, Metromover and Brightline converge.

The development will contain 616 units and 24,000 square feet of retail. 360 units will be workforce housing and the balance will be market rate. These workforce units ensure that, in a city where rents increased by 58 percent during the past couple of years, rents for Miami’s workforce will remain affordable in one of the city’s most desirable locations.

What are your plans this year for the major markets you are established in?

Duke: From a corporate perspective, we will continue allocating significant resources to attract and retain the best talent. As it relates to our existing portfolio, we will further our deployment of advanced strategies that allow our onsite teams to produce outsized renewal retention by creating communities in which our residents feel at home. Finally, regarding our growth in these markets, our acquisition team remains focused on finding the right opportunities at the right time.

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