Small Investors Step Up During Pandemic
Winning Real Estate Deals With Localized Knowledge
By: Laura Labay
During these uncertain times, in the apartment world, we are seeing local investors stepping up and winning big deals. According to an article on Loopnet published on June 17, 2020 by John Doherty, a pattern of recent Real Estate deals indicate while some sales of multifamily properties are cratering, small- and medium-sized firms are getting them done. “Smaller, more local buyers may feel they have better information about their local markets — and may have a more optimistic outlook”, said John Affleck, vice president of market analytics at CoStar. “And, with many national buyers taking a ‘wait and see’ approach, the local players are winning deals that might have gone to larger players last year”.
Most companies don’t like to reveal their strategies, but, those analyzing the moves and apartment brokers say this time of economic disruption and uncertainty is presenting a heyday for local investors. Smaller investors are able to get first dibs on deals while the big investment firms are waiting to see how the market recovers.
As an aside here, let’s review what constitutes a smaller firm in the apartment and multifamily investing world. One of the transactions we will review below includes the BSR Real Estate Investment Trust (REIT), based in Little Rock, my hometown. BSR owns properties in four states, trades on the Toronto Stock Exchange, and has over $1.1 Billion of assets under management, according to their most recent financial statement.
“These regional guys are looking down the road a little longer”, said Dennis Harris, a broker with The Kirkland Company, a boutique multifamily firm in Brentwood, Tennessee. Here are some examples of smaller investors making property transactions: Last week, Dallas’ Knightvest Management paid $42 million for Hawthorne at the Trace in Raleigh, North Carolina.
It’s a move that a lot of big investors weren’t willing to make at this point, especially with persistent concerns over whether the tenants will be able to pay rent as U.S. unemployment claims top 44 million during the coronavirus pandemic. However, that 15-year-old, 250-unit property is a quintessential value-add strategy, and could pay off once upgrades can be made in order to boost rents. The background on Knightvest is it’s relatively small, it has acquired about $1.9 billion of rentals over the past few years.
The firm usually holds on to properties longer than the big public real estate investment trusts and private firms that like to flip properties every three to five years. But lately, buyers such as Knightvest have been stepping up and are more active than the big investors such as Aimco, Mid-America Apartment Communities, Greystar and others. Chances are you may have lived at one of the apartments owned by these giant corporations at some point. In comparison to BSR from Little Rock, Greystar has $35 Billion assets under management, with properties in 114 markets. DEALS THIS MONTH Just north of Austin, another large deal in Georgetown, Texas, took place.
BSR, the REIT based in Little Rock, Arkansas, paid $51.6 million for a 303-unit, Retreat at Wolf Ranch. According to CoStar, BSR has made about $600 million in purchases over the past five years. Also this month, Miami’s Westside Capital Group won the bidding for The Residences at Veranda Park in Orlando, Florida, paying $45 million for the 150-unit, 12-year-old property. The firm has done about $124 million in deals over the past five years. Kirkland recently brokered the $25 million sale of University Apartments in Raleigh.
That 199-unit property is in an area of a booming North Carolina market ripe for redevelopment. A small player, Dominion Group of Knoxville, Tennessee, won the right to that purchase. It was the firm’s first pickup outside Tennessee since forming in 2007. Without the massive fund shops and apartment operators to contend with, smaller players can put their localized knowledge about management to work. And their confidence in the markets they know well can help them handle potential confusion surrounding how apartments will perform in the next year or so if the coronavirus and economic downturn continue to spread through the country.
But that doesn’t mean the big dogs are completely out of the game. Greystar, the giant based in Charleston, South Carolina, picked up Avana Thornton Station in suburban Denver on June 10. It paid $119 million for that 18-year-old, 480-unit complex. Blake Okland, the head of Newmark Knight Frank’s multifamily brokerage team, said the larger buyers are taking a wait-and-see approach generally. If prices are falling and regional players are making money, he said, the big investors aren’t worried too much.
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