Black Creek’s Multifamily Leader Has Big Plans for the Sun Belt

Chris Westcott, senior vice president of multifamily acquisitions at Black Creek Group, joined the investment firm a little over a year ago to lead the firm’s new focus on multifamily. He had previously headed multifamily acquisitions at BMC Investments and The Wolff Co. Since launching the platform in January 2019, Black Creek has closed three acquisitions totaling some 1,000 units. The first two deals were in Winter Park, Fla., and Rockville, Md., followed by a final deal in Atlanta at the end of December.

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The acquisitions are the first in the company’s focus on the Sun Belt, where strong job and population growth continue to drive deals. Westcott talked with Multi-Housing News about the company’s interest in suburban markets; multifamily sectors they are looking at closely; and challenges posed by demands from renters of the Millennial and the Baby Boomer generations.

(Editor’s Note: This interview was conducted in February 2020, prior to the coronavirus (COVID-19) pandemic)

Your company has been buying multifamily properties in suburban areas of the Sun Belt but avoiding core markets in the biggest cities in the country. Why?

Part of our multifamily strategy is to get slightly better returns than what a typical core deal would yield. The way we’ve chosen our markets is to look at areas that have had strong population growth (and) strong employment growth and have had historical market trends in vacancy and rent growth and (that) have outperformed other areas.

We have chosen to go the suburban route versus the core route for primarily two reasons. One, we have better returns that what we’re seeing in the core space today. And two, we’re looking at a lot of construction pipelines and a lot of them are in core markets, and we think that will put a little supply-and-demand pressure on those locations, as opposed to some of the suburban locations where we’re buying, where we’re seeing less supply pockets and less future deliveries coming.

Do you have a favorite market?

I don’t know if I have a favorite market. I like the Sun Belt, I like Atlanta, I like Raleigh and I love Phoenix—that’s partially because I live in Phoenix (laughs), but also because demand drivers and the diversification of the employment base really has changed Phoenix as an overall market. If you look at Atlanta, Raleigh and Phoenix, they have very similar characteristics as far as what’s driving their employment, what’s driving their population growth and really what’s driving their multifamily fundamentals.

Besides some of the biggest cities in the country, what other areas would you be least likely to invest in?

You know, there’s not a whole lot of “least likely” areas. We’re not focused on a lot in the Midwest today. Specifically, cities like Chicago we’re not focused on. We’re not focused on Kansas City. We’re really focused on cities that have seen a lot of growth in their employment and population during this last cycle.

Given the so-called silver tsunami of Baby Boomers that is expected to make a huge impact on the senior housing market, is Black Creek interested in investing more in that segment?

We’ve spent a little time doing some research on senior housing, and we’re not shying away from it, but we’re not jumping in full-fledged to it right now. We’re watching some of the supply get absorbed, and as we see a little more success there, we may spend more time focused on it. But at this point we’re really, primarily focused on multifamily and just kind of market-rate multifamily deals.

Are the demographic trends and renting habits of the Millennial and Gen Z groups a driving force in your business strategy?

It’d be hard to say it’s not a driving force, right? Between the Millennials and Gen Z, they really are the driving force of multifamily today. Between those two groups and the Baby Boomers. We look at those three groups and say that is our target audience today. We’re looking at Class A deals and renovating Class B deals that are offering common areas and unit interior finishes that are such a step above where things were even four years ago, based on the demands of those three major age cohorts. We’re hyper-focused on what the trends with Millennials and Baby Boomers really are.

How have recent laws and regulations surrounding rent control had an impact on how you look at the market?

The areas where—and I don’t pretend to be a rent control specialist or expert in this situation—rent control has really caught most of the nation’s attention, we’re not too focused on those markets as far as where we’re trying to grow … Because the yields in California, Portland, New York City are so low on Class A in multifamily returns, that really wasn’t on our radar to begin with, so it’s really not affecting what we’re trying to do on the multifamily side at Black Creek.

What worries you about the current market?

I’ve been in this business for a long time. We’ve seen the increase in demands from our tenant base, from the Millennials and the Baby Boomers, expecting these high-end kinds of communities, concierge-style apartment deals, and it has really created a little more stress on our payroll numbers. We’ve got a much more sophisticated manager today than we had 20 years ago, and much more highly educated staff than probably was in the marketplace 20 years ago.

So, we’re seeing pressures applied on the payroll side, we’re seeing insurance rates run on us right now. There’s been a lot of losses in the last couple of years in commercial real estate and that’s put a lot of pressure on our insurance numbers, and we’ve seen those run a little bit on us. And you know those are really the kind of big operational things that we’ve seen over the last couple of years here that are kind of pushing on us a little bit.

Looking to the future, how big are you looking to grow Black Creek Group’s multifamily portfolio? And would you ever consider expanding into international markets like the U.K., which has seen a lot of activity from U.S. investors?

There’s no real thought at this point of advancing our multifamily into the U.K. or internationally at this point. I think that would be a conversation for later on down the road. But at this point I think we’re in the infancy of our multifamily platform at Black Creek today. We just really started buying multifamily last January so we’re going to be focused primarily on the states for the foreseeable future.

As far as what I see for Black Creek, we’re going to be very active in the space. We’re going to continue to chase deals that we think hit our return metrics and our parameters. I’ll say we’re going to be very active in 2020 and I think the future holds the same level of activity that we’ve seen over the last year and kind of growing it from ‘19 to ‘20 to ‘21.

Read the April 2020 issue of MHN.