Multifamily Investment: What Fuels Albuquerque’s Climb?

(Left to right) Joseph Baum, Benjamin Sandel. Images courtesy of HiCap Management

With job growth in line with U.S. averages for the first time this cycle, Albuquerque’s multifamily market has had a relatively strong year so far. Large investments in the area—such as Facebook’s data center development in Los Lunas, N.M., Netflix’s recent acquisition of ABQ Studios or NBC Universal’s commitment to build a new TV and film studio—are alluring multifamily developers and investors alike, boosting rental demand along the way.

HiCap Management, a real estate investment and management firm, is very active in the Albuquerque area. The company’s Co-Founders Joseph Baum and Benjamin Sandel discussed the current trends in the market and how billion-dollar investments are permanently altering the metro’s multifamily industry.

Tell us about Albuquerque’s multifamily market.

Baum: Albuquerque’s multifamily market has really taken a turn this last year due to recent hiring across the metro area. Affordability is still the main trend when it comes to renting apartments, but as job growth continues, we are seeing more demand for renovated product and the ability to increase rents on non-renovated product in prime areas. With more job growth on the horizon, Albuquerque remains significantly more affordable than competing metros like Las Vegas and Phoenix.

State and local government have been making strides to attract companies to Albuquerque. This was seen with Netflix’s expansion into the market and, most recently, with NBC Universal’s commitment to invest $500 million into the local film market. Due to the limited supply of housing in the market, we have seen rents grow between three and five percent this past year.

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Which submarkets within the metro do you consider most attractive for investors and developers and why?

Baum: We consider Uptown to be one of the most attractive areas for investment and development within the metro. Uptown sits in the center of the city with great highway access and is within walking distance of the best shopping and retail in the city. The limited supply of housing in Uptown makes it particularly attractive, as more people move to the Albuquerque metro in search of an urban city-like environment.

How do you think the multifamily market will cope if job creation continues at an above-trend rate?

Baum: Albuquerque is setting up very nicely to take advantage of rent growth as a direct result of recent job creation. The limited housing supply, combined with the high cost of construction for new apartments relative to what can be obtained in rent, have already resulted in strong rental increases in 2019. Particularly, infill locations like Uptown and Northeast Heights will benefit from rent growth as higher-income earners move to Albuquerque and strive to be in great neighborhoods with access to entertainment and jobs.

ABQ Studios. Image via Google Street View

How do you expect the major investments announced here to influence the metro’s multifamily market going forward?

Sandel: We feel that Facebook, Netflix and most recently NBC Universal’s commitment to expand in Albuquerque have created somewhat of a snowball effect in where more small and large companies will continue to seek out Albuquerque for expansion. I believe we will see the biggest impact with more demand for lifestyle/amenity-focused properties. We feel that this will also trickle down to the workforce housing category where we might see a reduction in concession-driven rentals and steady rent growth across all classes of multifamily.

What are the challenges in managing multifamily properties in the metro and how do you overcome them?

Baum: A challenge that we have faced over the past couple of years has been stagnant wage growth in our workforce housing tenants. This has made management of assets difficult, as it has been challenging to capture rental upside on lower-income earners as tenants at the lower end of the income spectrum tend to hop from building to building in search of the latest concession.

We have overcome these challenges by implementing strategic upgrades and renovations at our workforce housing properties that either create a value proposition for these tenants to renew their leases with rental increases or to change the demographic of the property entirely, where we are able to capture a new, higher-paying tenant. Tenants in Albuquerque value location and commute time and finding ways to make your property stand out can reduce turnover and increase rents.

How hard is it to find financing for your projects in New Mexico?

Sandel: We have had success in financing our Albuquerque properties with both Fannie Mae and Freddie Mac. While there are some local lenders that we have spoken to in the past, agency financing remains the most competitive debt source in the market for stabilized and light value-add multifamily.

Apart from Albuquerque, what other markets in New Mexico are you considering for future investments? 

Sandel: Outside of Albuquerque, we are bullish on certain parts of Rio Rancho, which has good school districts and easy access to retail and shopping, especially if recent job and rent growth continue as tenants will seek out apartments with lower rents, with good local amenities. Santa Fe is another market we are bullish on due to its tight housing supply, proximity to Albuquerque and its world-renowned reputation as a hub of culture and arts.