With low unemployment rates and robust in-migration, Atlanta’s economy continues to outperform, supporting strong multifamily fundamentals. Investors have taken note of the opportunities the metro is offering, so they’re “sharpening their pencils to participate in a market running at full speed,” as FCP Vice President of Multifamily Acquisitions and Development Alex Cathcart puts it.
In the interview below, Cathcart and FCP Associate Cristina Istrate share their insights into how the health crisis impacted the metro’s multifamily market in 2021, and what investors should expect going forward.
How has the most recent economic downturn impacted the Atlanta multifamily market compared to other metros in the Southeast?
Istrate: I think many of the markets in the Southeast fared well during the most recent economic downturn, but Atlanta, in particular, exhibited a lot of strength. Georgia was one of the first states to safely open back for business in April 2020, which allowed many businesses to continue to operate and keep people employed.
Today, Georgia has an all-time low unemployment rate of 2.4 percent, which is below the national average of 4.2 percent. With strong migration patterns and such a low unemployment rate, Atlanta’s economy continues to perform strongly, which attracts new entrants to the area…This gives us confidence that the apartment industry in the Atlanta market will continue to experience a strong recovery in 2022 and beyond.
Which Atlanta suburbs have been the most sought-after in the past 12 months and why?
Cathcart: Without a doubt, the northern suburbs—Atlanta’s wealth wedge or “martini glass”—remain the most sought-after submarkets, and that was particularly true as investors flocked to safety when a bumpy, unpredictable recovery began to unfold in the second half of 2020.
As firms like ours cautiously monitored unemployment, rent delinquency, crime and the general return to in-person behavior, it felt reasonable to believe the south side could lag the north side in a recovery, much like we saw after the Great Financial Crisis. And soon after the acquisitions market stabilized in the northern submarkets, we saw developers quickly return to action in search of opportunities to capitalize on both rapidly rising rents and compressing cap rates, with a particularly robust pipeline emerging in submarkets along I-85 North.
All that being said, we saw a surge in renter demand in the southern submarkets over the course of 2021, which propelled rent growth to levels as strong or stronger than many of their northern counterparts. A few submarkets even posted year-over-year rent growth exceeding 20 percent—truly staggering levels. Investors have caught onto these trends over the course of the year and, in spite of the aforementioned concerns, expanded their footprint within the market. At this point heading into 2022, the entire metro feels highly liquid.
What surprised you most about the pandemic’s impact on the metro’s multifamily market? Have investors changed their strategies?
Cathcart: 2021 certainly had a number of surprises, from eye-popping rent growth to plunging cap rates. In the development space, it initially seemed plausible that commercial real estate construction starts could fall precipitously in 2021, causing a modest decline in hard costs. Instead, costs went through the roof.
Similarly, forecasted softness stemming from elevated unemployment and built-up rental delinquencies, particularly at Class B and C communities, never materialized. We’ll see if that comes to bear in any submarkets in 2022.
Another surprise was the rapid recovery of many urban submarkets despite a bumpy and fractured office recovery. In some instances, that rapid recovery led to some of the lowest cap rates I’ve ever seen as buyers made momentum plays. That’s not to say people didn’t think Atlanta’s urban areas wouldn’t recover, but rather the pace at which many assets recovered was surprising. All of this has led investors to lay to rest bear market strategies and, in turn, focus on sharpening their pencils to participate in a market running at full speed.
Has the health crisis changed your investment strategy in the Atlanta multifamily market?
Cathcart: Not materially. Prior to the pandemic, we had assembled a workforce housing portfolio throughout the market, much of which was adjacent to burgeoning industrial and logistics centers. In 2021, we continued to employ those strategies, adding more than 3,600 units to our local portfolio through 12 acquisitions. We also continue to have a strong appetite for multifamily development and are aggressively trying to deploy capital to take advantage of the ongoing run-up in values.
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How strong is your portfolio in the market and what are your plans going forward?
Istrate: We have a diverse and defensively positioned portfolio of multifamily assets in the Atlanta market that performed excellently this year, with an average occupancy of 94 percent and same store rent growth of 13.5 percent.
While we’ve seen an increase in delinquency during the pandemic, especially in the class C assets, many non-profit organizations assisted residents with county and state rental relief funds. Since the pandemic started, we were able to secure over $1 million of rental assistance, which helped many of our residents to get back on their feet—an effort we’re very proud of. In addition, our Atlanta portfolio’s average rent is $1,024, so we’re able to offer a very affordable price point relative to the metro’s current median household income of $71,742.
Regarding our portfolio plans moving forward, we will continue to deploy capital to address deferred maintenance, complete renovations where feasible, closely monitor collections and occupancies, implement the latest proptech to improve every facet of the operation and, above all, prioritize safety and customer service for our residents.
What are your predictions for Atlanta’s multifamily in 2022 and what advice would you give to investors considering entering or expanding into the Atlanta market?
Istrate: I think Atlanta will continue to be one of the strongest multifamily markets in 2022, with continued capital inflows generating robust sales and financing activity. We will continue to see strong demand for apartments as well as high levels of rent growth, which will fuel high property values and keep cap rates low.
FCP is bullish on the Atlanta market and is actively looking to expand the portfolio, but the competition is fierce. New investors considering entering into the Atlanta market should be creative with their purchase terms, choose strong partners, have the equity lined up before the best and final call, and be ready to pay more.