Atlanta—How is the state of development in multifamily, particularly in the Southeast? MHN talks to Summey Orr, managing partner at Hartman Simons, about development trends and why fewer new investors are coming to the market.
MHN: What are some general development trends for multifamily?
Orr: On the investment side, we are seeing some fatigue in the market for multifamily. The popularity of these assets versus other property types that have come out of the recession more slowly has brought a fair amount of investor competition for apartment projects, in some cases driving up prices beyond the realm of common sense. It’s not yet to the point of the mythical restaurant that’s so crowded that nobody goes there anymore, but this sector has certainly attracted a group of buyers who previously didn’t fish in this pond.
MHN: What about in Atlanta and the Southeast, specifically? Do these reflect trends across the country?
Orr: The Southeast, and particularly Atlanta, is going to see some growth in multifamily development in the next few years due to demand and the absence of new development over the past five years. It won’t be every area or every class, but for higher-end product in infill areas, there appears to be a wave of development about to start.
MHN: What types of investors are most active in the Southeast, and how does it compare across the country?
Orr: There are still the institutional investors, and there are those new to the multifamily party as discussed above. We are seeing fewer new groups enter this market now, and the battles for product seem to be among those who have found reasonable deals in the last five years, haven’t gotten hurt by any of them and still have an appetite.
MHN: What is the state of underwriting?
Orr: Still very cautious, for the most part. It takes a while for a recession to wear off so that people forget that bad things can (and do) happen, and it will take longer for the Great Recession to wear off.
MHN: What are some pitfalls multifamily investors should avoid?
Orr: When there is a sense that there are good deals to be had if you’re in the right place—which is one of the factors we have now—there can be a tendency to fall in love with a geographic area, a particular submarket (i.e. student housing) or a particular portfolio holder. Investors still need to think through their investment goals and make sure the deals match the program.