Apartment Investors Are as Bullish as Ever About the Sunbelt

Article originally posted on Globe St. on November 8, 2021

Morgan Properties has just acquired two portfolios totaling 4,724 units for $780.5 million.

The Sunbelt region for multifamily property transactions is booming right now, Jonathan Morgan, president of Morgan Properties JV, an affiliate of Morgan Properties, believes.

To that end, his company just added 18 communities there, acquiring a pair of portfolios for $780.5 million, to grow its stature as the second largest apartment owner in the country.

“These portfolios presented a tremendous opportunity for us to increase our footprint in states that are undergoing high population and employment growth,” Morgan said in prepared remarks.

Morgan Properties is hardly the only firm targeting this part of the US. Investor interest in apartments at nearly any price is not dampening, particularly in the Sunbelt states, Karlin Conklin, principal, IMG, tells GlobeSt.

“Landing a bargain in quality multifamily these days is nearly impossible. Assets in midsize markets like Charlotte and San Antonio are trading for a premium, but this hasn’t dampened investor enthusiasm for apartments—especially across the Sun Belt states.”

Conklin notes that IMG has traded nearly half a billion in this region in 2021, and is targeting even more for 2022. “Having a solid understanding of submarket fundamentals—jobs, population growth, incomes— plus long-term connections with brokers and other principals is key to growing a portfolio when competition for assets is this fierce,” she says.

Historically Unprecedented Rent Growth

Rent growth trajectory in the Sunbelt states is another reason why investors are seeking out assets there. “During 2021, we have experienced historically unprecedented rent growth after steep declines during the early months of the COVID pandemic,” David Fletcher, Managing Director, Acquisitions, Excelsa Properties, explains to GlobeSt.

Fletcher said that measuring that strong rent growth against ultra-low cap rates, which consistently range between 3% and 4%, but now can dip to high 2%, is the challenge the buyers face: Is there enough rent growth to justify the low cap rate? “For sellers the question is, what to do with the money if we sell now? In 2022, it will not be easier,” he said.

A Pandemic-Proof Asset Class 

To be sure, apartments are a hot commodity throughout the US. “As Q4 performance data comes in, we see that this asset class is nearly pandemic-proof. Most markets still face housing shortages,” Nate Hanks, CEO, RealSource, tells GlobeSt.

“We believe it will take years for new supply to find an equilibrium for housing in most major metros. Our in-house research is showing that the pace of rent growth will continue to accelerate and outperform most experts’ forecasts through 2023 in about two dozen of target markets we track.”

Eddy O’Brien, managing partner and co-founder of Blaze Capital Partners, tells GlobeSt, “As we head into the final stretch of the year, the multifamily sector has never been hotter for capital. While the pandemic presented a number of obstacles to other asset classes, multifamily has continued to fare exceptionally well, due to its resilient nature. And with fewer investment opportunities in other asset classes, such as hotels and suburban offices, there has been an abundance of capital left on the table that has poured directly into multifamily.”

All that said, the Southeast and Sunbelt have been disproportionate beneficiaries of these trends as well as the investment flows. O’Brien points out that  COVID-related restrictions were lifted sooner in these regions, attracting more capital from eager investors. “We’re seeing this accelerate even more through the end of the year, as traditional gateway investors are also tapping into golden opportunities across the Sunbelt.”

Morgan Portfolio Grows in Four States

In its newly-announced deals, Morgan Properties acquired two portfolios totaling 18 apartment communities and 4,724 units in four states.

The MSP Portfolio spans Georgia, Florida, North Carolina, and South Carolina. Its 15 apartment communities totaling 4,102 units offer a mix of Class B workforce and Class A upscale units with a concentration of units in the Columbia, S.C.; Fayetteville, N.C.; Jacksonville; Augusta, Ga.; Greenville, S.C.; and Charlotte, N.C. markets.

The Northland Portfolio is focused in West Palm Beach, Fla., and consists of three garden-style apartment communities totaling 622 units. Royal St. George (224 units), Village Place (202 units), and Windward at the Villages (196 units) are within walking distance of each other and provide convenient access to primary shopping, golf, and dining options.

Morgan Properties acquired the Middle Street Partners (MSP) and Northland portfolios for a combined $780.5 million. With the addition of these new communities, Morgan Properties now owns and operates 10,540 units throughout the Sunbelt region, and 95,000 units nationwide.

Morgan Properties plans to execute a $47.5 million value-add repositioning strategy throughout both portfolios. Morgan Properties will be adding more than 90 new employees from the portfolio of acquired properties, driving their total employee count to over 2,600 nationwide.