What Makes Raleigh-Durham a Compelling Investment Market?

Matthew Ferrari, Co-Chief Investment Officer, TruAmerica. Image courtesy of TruAmerica

Healthy job additions and strong demographics attracted multifamily investors to Raleigh-Durham. Owning and managing more than 40,000 units across the U.S., TruAmerica entered the market at the end of last year by acquiring a $108 million three-property portfolio consisting of Duraleigh Woods Apartments, Bridgeport Apartments and Sailboat Bay Apartments.

In an interview with Multi-Housing News, Co-Chief Investment Officer Matthew Ferrari talks about the company’s acquisition plans for this year in Raleigh-Durham and ways to overcome current challenges.

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According to Yardi Matrix data, TruAmerica owns more than 800 units in Raleigh-Durham area. What investment opportunities does this area offer?   

Ferrari: Correct. The Raleigh-Durham MSA is a dynamic market with strong schools and great access to job centers, such as the Research Triangle with its nationally recognized medical centers and renowned universities. While we have identified a number of submarkets to invest within the MSA, currently our portfolio totals 830 apartment homes located in Northwest Raleigh.

Like many of the submarkets within the MSA, Northwest Raleigh has high barriers to entry that make it difficult to develop needed rental housing. Combining these submarket qualities with one of the lowest rent-to-income percentages in the nation makes Raleigh-Durham a compelling market to invest in.

At the end of last year, you acquired a $108 million portfolio in Raleigh, the company’s first purchase in the state. Do you plan on expanding your Raleigh-Durham footprint?

Ferrari: We definitely plan to expand our portfolio in Raleigh-Durham. Our current assets have performed very well since acquisition, and, in fact, have exceeded our expectations, even during this crisis. We believe Raleigh-Durham will continue to provide strong long-term risk-adjusted returns for our investors. As we have done in our other targeted markets throughout the U.S., our plan is to gain scale in the Raleigh-Durham MSA.

Raleigh-Durham was part of the nation’s economically dynamic tech markets, which also sparked interest for the area’s multifamily properties. What can you tell us about the market’s status today and in the coming year?

Ferrari: We believe that this dynamic is still the case and will be after COVID-19. The Research Triangle Park provides plenty of tech and life sciences jobs, many of which are focused on finding a cure for COVID-19. We also expect companies will continue to look towards less dense, lower cost of living areas for relocations and expansions and talent to follow as they emigrate from dense urban areas.

One such example during the coronavirus crisis is Bandwidth, a Raleigh-based communications software service company. In April, it announced a 1,200-job expansion. Of course, how soon the market will be back to where it was depends on the length of the health crisis, which will impact apartment operations fundamentals in the short and medium term, which is no different than other multifamily markets in the U.S.   

Last year, the company had plans to hit $1 billion worth of acquisitions. Did you achieve your goal?

Ferrari: In 2019 we surpassed this goal with $1.5 billion in acquisitions across 22 properties throughout the Western and Eastern U.S. We also disposed of $1.1 billion of assets. It was a record transaction year for TruAmerica.

Do you have a similar plan for this year?

Ferrari: Heading into 2020, we set a goal of $1 billion of acquisitions. Since the COVID-19 pandemic began, we have recalibrated our goals to adjust to the new environment. We had already closed several transactions in the first quarter. Recently, we’ve been playing defense and protecting the more than 40,000 apartments that we own and manage across the country. However, we are still actively looking for new opportunities that provide appropriate returns for us and our investors and we are definitely in the market for new acquisitions.

How has the current crisis impacted your multifamily investment strategy?

Ferrari: We are a long-term believer in the Class B workforce housing investment space. This segment of multifamily seemed to have performed the best after the global financial crisis. This strategy has not changed. Tactically, we have adjusted our underwriting given there will most likely be a short- to medium-term slowdown in demand for leasing apartments. We’ve also adjusted our hold periods and when we plan to implement our renovation strategies. We also continue to look at core-plus investments opportunities.

How are you coping with challenges you’re facing during the outbreak?

Ferrari: There certainly are operational challenges, especially in the way we manage our properties. In addition to closing amenities and leasing offices, we have had to look at new ways to handle service requests. However, we’ve implemented new technologies at the site level, including virtual tours, self-guided tours and looking at our expenses differently and creatively. We’ve been able to reduce certain expenses and have seen renewal retention increase tremendously, along with much stronger conversion rates of prospective residents. 

How has your company’s approach changed in light of the current situation?

Ferrari: We are doing our best to be nimble in looking at opportunities and leveraging our relationships. Additionally, we’re becoming more creative in how we operate our assets and consider new investment opportunities. The standard value-add formula from the last several years must evolve during this period and we’ve been taking that approach where it makes sense.

How can multifamily investors better prepare for economic uncertainty?

Ferrari: We always try to ensure that we’ve matched our capital with our business plan and timeline but also have plenty of term on our debt so that we can ride out the cyclical nature of our business. This enables us to choose when we sell an asset rather than having economic or operational events dictate these decisions.