Atlanta–Wood Partners L.L.C. recently expanded its acquisition team with the hiring of Curtis Walker and Don Foster. Walker and Foster join national acquisition director Jay Jacobson.
Jacobson talks to MHN about plans for the acquisition team and why he believes the South Florida market is the strongest he has seen in many years.
MHN: What is the acquisition group’s strategy?
Jacobson: We will be acquiring new properties this year. We want to concentrate on Class B properties in primary markets that are 10 to 15 years old. We want to stay away from the urban core A+ high priced and over heated coastal markets. We believe the pricing model for those is too efficient and we cannot compete at that level of efficient pricing. We will look at B properties in stabilized markets with stabilized cash flows.
MHN: Do you plan to acquire any distressed properties?
Jacobson: We don’t see a lot of distress. The term has been well over-used but there isn’t a lot of distress on the market. We occasionally find a bank that wants to sell a note here or there based on pricing. But I think people are calling properties of any classes that are selling at less than it cost to build them-distressed.
MHN: So why is everyone talking about distressed properties?
Jacobson: People wish there was an opportunity to acquire distressed properties. We managed to find one distressed deal in Oakland that’s being finished right now. Other than that we haven’t seen any. There is a lot of talk that valuations have come down from the peak—so people are using that term for that fall in price.
There may have been distressed properties a year ago, but I would not call any of the current ones distressed.
MHN: What markets will the team focus on?
Jacobson: We are going to concentrate on the suburban D.C. markets; the Boston market, the Mid Atlantic region—Charlotte and Raleigh in particular, South Florida—Miami in particular; Dallas Houston, San Antonio, Salt lake city. We are going to focus on these markets.
MHN: But doesn’t Miami have some distressed properties?
Jacobson: Every now and then in Miami you will see something. Of the inventory that exists now—all unfinished existing buildings that started in the boom, there may be four or five in the market right now. And every single one is in place. Other than that all the stories you hear and the perceptions people have thousands of condos being vacant is not true. The occupancies in rental apartments around South Florida are 96 to 98 percent right now. There is a two to three percent strong rent growth. Also, the condo inventory is pretty much gone. There are probably 3,000 to 4,000 units remaining in the market, which is pretty normalized. They are either occupied by owners or rented out. So there are very few distressed properties and bulk condo deals. The market is as strong in Miami as I have ever seen it in my 35 years of living here. Even to the point where there will be 3,000 to 4,000 new units of apartments started in the next 12 months.
We are trying to keep it a secret. It’s kind of interesting because all the pundits are still saying the South Florida market is devastated. We just shake our heads laugh about it. People don’t know what’s going on around here. Of course, pricing is reset. Condos that sold for $600-$700 a sq. ft. are selling for $200-$300. Pricing has reset just like the rest of the country. But inventory is getting sold and condo sales are up. Also, the rental market is as strong as I have ever seen it.
MHN: Is there a target date or amount for each of these investments?
Jacobson: We’ll invest when and where it makes sense. We don’t have a target. I would rather buy one or two good solid properties than a dozen mediocre ones. We have the financial capacity to buy as much as we can. The intent is to add to the existing 16,000 units that we already have. In the next couple of years we would like to double that with acquisitions, as well as our development platform.
MHN: In your experience, what is the state of financing?
Jacobson: We think it has eased up. There is more competition to Fannie Mae and Freddie Mac. We are seeing a lot of permanent debt quotes from life insurance companies that are coming back into the market. This gives an incredibly competitive alternative to the GSEs. We are also finding that our equity investment partners have come off the sidelines now and are investing a larger amount of their capital allocated for real estate into multifamily. They are getting aggressive. I find that financing is not the issue but it’s the amount of product out there—or a lack thereof.