Southeast Multifamily Sector Tallies Most Transactions Since ‘05

By Jeffrey Steele, Contributing Writer

Atlanta—High rental demand and a positive lending environment have helped catapult the multifamily sector in the Southeast United States to its highest transaction levels since 2005. That’s the recent word from Jones Lang LaSalle, which closed nearly $1.2 billion in sales during the 2012 calendar year.

At year end, the Jones Lang LaSalle team’s list of sales included 38 single-asset transactions and seven equity raises. Together the sales encompassed 18,000 units, throughout the Carolinas, Florida, Tennessee, Georgia and Alabama.

The company reports vacancy rates are at their lowest point since early 2008, and rents have racked up ongoing gains each quarter since 2010. The Southeast region’s vibrancy mirrors that of much of the nation, and is founded on many of the same reasons.

“From the recession through today, there’s been very anemic apartment development,” David Gutting, managing director of Jones Lang LaSalle in Atlanta, tells MHN. “We have basically had a supply-constrained environment since 2008. At the same time, you have the Gen Y rental cohort entering their peak rental years, and they’re entering the market robustly. It’s a combination of strong demand from a particular cohort, combined with a constrained supply.”

Layer in those who have been foreclosed upon or decided home ownership was a bad experience and re-entered the renter pool, and there is a severe demand-versus-supply imbalance driving occupancies higher and sending effective rental rates skyward, Gutting says. As a result, property owners who wanted to sell their apartment communities earlier but couldn’t are now enabled to sell. “We haven’t seen market fundamentals as strong since the early 1990s,” he adds.

Gutting doesn’t view as a serious threat the prospect of overbuilding. “Today, new development is taking place in urban infill live-work-play environments,” he says. “Roll back the clock 20 years ago, and development was more suburban.”

If there is any cause for worry, it’s that up until now, rent increases have been magnified at the top end of the market. But now that renters at the top in, say, Atlanta, have seen rent hikes of up to $300 a month (“that’s a car payment,” Gutting says), many have begun stepping down to less costly apartments, helping spur a trickle down of rental increases at that level as well.

Jones Lang LaSalle’s Southeast Multifamily Investment Sales group is comprised of 14 experienced real estate professionals focused on the sale and financing of multifamily properties in Georgia, Tennessee, North and South Carolina, Alabama, Kentucky and Mississippi.

The team also works in close collaboration with the Real Estate Investment Banking experts to source both debt and equity. The firm’s purchase of Primary Capital has enabled it to operate as a Freddie Mac Program Plus Seller/servicer, and includes a $2 billion loan-servicing platform.

The top three Southeast Multifamily transactions that took place last year were:

• Lehman Portfolio in Nashville, Tenn., encompassing almost 1,600 units, was purchased by Harbor Group for $130,650,000.
• Post Biltmore in Atlanta, encompassing 276 units, was purchased by Mesirow Financial.
• Eleven North in Nashville, Tenn., encompassing 302 units, was purchased by Mesirow Financial for $58,750,000.

All in all, Gutting is upbeat about the future. “Overall, the demand is not at all satiated,” he says.