Why Invest in Orlando’s Multifamily Market
- Aug 08, 2019
Investment activity in Orlando is mostly focused on product with value-add potential, as Investcorp’s Herb Myers confirms in an interview with Multi-Housing News: “Investcorp’s focus is on Class B garden-style multifamily product and we expect this asset class to continue to be an attractive investment.”
Since 1996, Investcorp has acquired more than 600 properties with a combined value of more than $16 billion. Its most recent deal included the acquisition of an 11-property portfolio totaling $370 million, marking its largest U.S. real estate portfolio acquisition completed in the past decade. Yardi Matrix data shows that Investcorp owns 914 units in the Orlando market and more than half were acquired this year. Myers, managing director of real estate investment for Investcorp, discusses what this market has to offer and why the company invests in it.
Investcorp recently paid $370 million for 11 properties in five states: Florida, Georgia, Missouri, North Carolina and Pennsylvania. Tell us the story behind this deal. Why these markets?
Myers: The U.S. multifamily sector has performed well during the current real estate cycle backed by strong population growth, job growth and stable supply/demand factors. Secular tailwinds have also contributed to a shift towards multifamily renting from homeownership due to rising home prices, higher mortgage rates and limited supply.
Specifically, the Florida markets (Orlando and Tampa in this portfolio), Georgia (Atlanta) and North Carolina (Raleigh in this portfolio) have all exhibited strong population, job and gross metropolitan product (GMP) increase. All these markets are projected to see continued growth over the next five years, ranking towards the top of each category among all major U.S. markets per Moody’s. These markets are also expected to see continued growth due to the 2017 federal tax legislation, which reduced some of the tax benefits of homeownership and has led to a population migration to tax favorable areas.
Investcorp is focused on the multifamily sector as the asset class tends to allow consistent cash flow for our investor base. While Investcorp has been driven towards investing in the “Smile States” due to the attractive recent and projected growth, Investcorp will also consider investing in markets such as St. Louis, Mo., and Philadelphia where we are able to add value and generate consistent cash returns.
According to Yardi Matrix data, Investcorp owns four multifamily properties in Orlando, two of which were acquired this year in the 11-property portfolio purchase. How do you see the Orlando multifamily market?
Myers: The Orlando market ranks near the top of any major U.S. market in many of the key five-year projection metrics Investcorp looks at when evaluating markets. Per Moody’s, the Orlando market ranks over the next five years as the major U.S. market with the fifth highest projected population growth rate, the second largest projected employment growth rate, the highest projected multifamily rental rate growth and the fifth largest growth rate in GMP.
Furthermore, multifamily supply in Orlando is expected to remain relatively constrained. Due to these expected continued trends, Investcorp views the Orlando multifamily market favorably.
Per unit prices in Orlando have increased year-over-year reaching an average of $157,645 as of April, according to Yardi Matrix. How do you expect per unit prices to evolve going forward?
Myers: Given the recent growth and the sustained growth projected in the Orlando multifamily market, coupled with continued moderate supply, Investcorp expects rental rates to increase over time, which will lead to a future increase in per unit prices.
READ ALSO: Orlando Multifamily Report – Spring 2019
Tell us about your expansion strategy for Orlando. What opportunities does this market offer?
Myers: Investcorp will seek opportunities to continue to invest in the Orlando market due to the recent and projected future growth metrics and continued constrained new supply. The moderate levels of new supply in the market tends to be Class A, higher-end infill product due to land and construction costs not permitting new construction of suburban garden-style product.
How do you see investment activity in the Central Florida markets going into 2020?
Myers: We expect investment activity in 2020 to be very similar to what we have seen in 2019 due to market growth factors previously discussed.
What are your predictions on multifamily investment trends going forward?
Myers: Investcorp is bullish on the multifamily investment space due to secular trends and recent performance, specifically in the Class B multifamily market. Overall, homeownership continues to remain below peak levels and affordable homeownership becomes harder to find. Changing lifestyle dynamics including delayed marriage, changes in family planning and increased divorce rates have led to increased renter demand in recent years. Millennials have been one of the main drivers of the increased renting lifestyle as they continue to focus on liquidity and mobility, partly due to increasing student debt.