How to Survive the Office Sector Storm: Invest in Multifamily

Austin is manuka honey for investors, with the metro's multifamily market so strong that it inspires long-time commercial players to diversify their portfolios.

While hospitality and retail are bearing the brunt of the health crisis, the office sector is also struggling as its return to normal has been repeatedly postponed. What seemed like a safe path, thanks to vaccines, is being pushed further into the future by the omicron variant. Not to mention the fact that after 18 months of pandemic reality, employers and employees alike have largely adapted to a new way of working and, in many cases, that means permanent remote or hybrid work. The safest move for commercial investors is the diversification of their specialized portfolios.

This is the strategy adopted by Hertz Investment Group, a real estate investment firm that acquires, markets and manages high-rise office properties throughout the U.S. Its portfolio of investment properties comprises more than 16 million square feet and spans 25 cities. But last year marked a double debut for Hertz—one on Austin’s scene and another one in the multifamily investment industry—with the acquisition of three value-add opportunities in Texas’ capital, with DB Capital Management.

READ ALSO: Texas Multifamily Turnaround Called ‘Major’

“We are always evaluating our portfolio and, certainly, we’ve been looking at the company’s concentration in the office market. This gives us additional diversity by investing in a product type that complements our existing geographic diversity,” Zev Hertz, chairman, CEO & president of the company, told MHN.

Specifically, in an unrecorded portfolio transaction, the investor acquired the 160-unit Ascent at North Burnet, the 132-unit Ascent at Quail Creek and the 130-unit Ascent at Walnut Creek, all in northwest Austin. To learn more about the decision behind the shift, we talked to Nate Kovitz, asset manager with Hertz. He is responsible for the company’s multifamily portfolio as well as conversions from office buildings into apartment communities.

Why Austin? What sets Austin’s multifamily market apart from other Texas metros?

Kovitz: Austin is and was known to be a “cool city” even prior to COVID-19. People were attracted to the tech jobs, nice weather, access to nearby hiking trails and lakes, and let’s not forget to mention, the cost of living. It’s also a university town, with the University of Texas at Austin being a large, prestigious research center. 

Why these three assets?

Kovitz: We are always looking for unique opportunities. We felt the Austin market was heating up and we saw an opportunity here, specifically because of their proximity to The Domain, one of the largest, high-density office, retail and residential centers in the area.

All three properties are currently undergoing renovations. What does this entail?

Nate Kovitz, Asset Manager, Hertz Investment Group. Image courtesy of Hertz Investment Group

Kovitz: The exterior of the properties has gone through a major transformation and reflect a new, modern look. We replaced all the roofs, converted all the buildings to a new modern color scheme, added private cedar-wood balconies, new landscaping, new signage, pergolas, barbecue grills, outdoor furniture, fire pits and dog parks among many more exciting things.

For the interiors, we’re installing quartz countertops and modern fixtures, refacing cabinets, upgrading appliance packages, adding washer and dryer hookups in select units, replacing the vinyl flooring and installing new HVAC units where needed, as well.

Are you considering expanding your Austin multifamily portfolio in the near future? 

Kovitz: We do have plans to expand in the near future. Since Austin is growing quickly and there is very little inventory, we’re looking at opportunities as they become available, without a specific target area in mind.

Presently, Hertz’ Texas office portfolio comes down to Houston. With so many Silicon Valley companies relocating to Austin, do you plan to grow your office presence in Austin, too?

Kovitz: We are always on the lookout for office deals. Should the right opportunity present itself in Austin, we would definitely take a good look at it.

READ ALSO: More Roads to Lead Austin to the Global Stage

Undoubtedly remarkable, how sustainable do you think Austin’s economic performance is? How do you see the market performing over the next few years?

Kovitz: I believe the Austin economy is diverse but with a focus on tech, which is a market that will continue to grow. In addition, Fortune 500 and 1000 companies are heavily investing in the city, with plans to relocate headquarters, or to expand their presence in Austin. There will be tens of thousands of jobs that will need to be filled in the coming years. It’s safe to bet that Austin will continue to grow quicker than most cities in the country and will continue to attract more tech corporations. I see it as a strong and robust market, with a lot more room for continued growth.

Do you have any plans outside of Austin? What other multifamily market is most appealing, second to Austin?  

Kovitz: We most definitely do. We will be heavily focused on the Sun Belt markets as those cities are continuing to see major growth year-over-year.

You May Also Like