NYC Investor Migrating To Atlanta Apartments To Avoid ‘Crazy Regulations’

A New York multifamily investor is leaving the Big Apple for the Big Peach as it looks for future apartment buys.

ICER Properties acquired a portfolio of six suburban Atlanta apartment assets from three different sellers earlier this month for $150M. The properties include Ashford Apartment Homes and Brookfield Apartment Homes in Conyers, Hampton Downs in Morrow, Harvard Place in Lithonia, Overlook Apartments in Jonesboro and the Park at Greenbriar off Interstate 285 near Greenbriar Mall.

In all, ICER bought 1,187 apartments for just over $126K per unit in an off-market transaction, President Joseph Jemal said. Meridian Capital Group provided ICER with a $130M acquisition loan.

The portfolio is ICER's second Metro Atlanta purchase — it entered the market a few months ago when it bought an apartment complex in Cobb County — and its third acquisition in the Sun Belt, where the firm plans to focus on building up its portfolio, far from its home territory in New York.

“The short answer: Am I still planning to invest in New York? No,” Jemal told Bisnow in a phone interview. “We're not actively looking to expand our portfolio in New York.”

Jemal said he blames the state's recently passed rent regulations and new building codes that he says make it difficult for landlords to earn profits on apartment investments.

“Just the environment of local government in New York, they make it impossible to make money,” he said. "It's just crazy regulations every day coming in."

ICER owns more than 60 properties in New York, a vast majority of which are apartments. In 2019, when New York Gov. Andrew Cuomo signed the Housing Stability and Tenant Protection Act of 2019, the state began capping rent increases in hundreds of thousands of regulated apartments, reduced the amount of money landlords could spend to upgrade regulated units and prevented landlords from raising rents more than 10% on vacant units. 

Investment sales of multifamily tanked the following year, although they have rebounded since.

Still, the regulations, along with a proposed change that would make landlords responsible for periodic elevator inspections, are enough to compel Jemal to sell off some of his New York apartments, he said. ICER agreed to sell an apartment complex in the Bronx last week it bought a year ago, he added.

“[New York political leaders] just put in these regulations that come out of nowhere, and it just hits your expenses,” he said. "And they have no regard for how a landlord is supposed to make sense of things.”

ICER is the latest company to flee higher-taxed and regulated cities in the Northeast and on the West Coast and put their money in the Metro Atlanta and Sun Belt markets. Atlanta continues to experience growing rents and occupancy across its multifamily market, which has helped lure out-of-town investors.

In the first half of 2021, $3.8B worth of Metro Atlanta apartments traded hands, according to Yardi Matrix, more than double the volume over the same period in 2020 and a $600M increase over the first half of 2019. Investors were particularly hungry for suburban apartments, which comprised $2.4B of the $3.8B total.

The demand has juiced Atlanta's apartment values, which rose 20% between June 2020 and 2021 to $159,200, according to Yardi Matrix, still below the national average of nearly $173K.

Bull Realty Vice President Maria King said she has been seeing an influx of out-of-state investors, including from New York, for some time now. But King said their desire to be in the Sun Belt markets has less to do with stringent housing regulations in other major cities than it does with the Sun Belt's fundamentals.

“Jobs. It's basically jobs,” King said.

The U.S. Bureau of Labor Statistics reported that Metro Atlanta gained 124,300 new jobs year-over-year in August, a 4.7% increase, ahead of the U.S. average of 4.4%.

The Sun Belt holds promising long-term growth prospects for apartment landlords. Now accounting for half of the U.S. population, the 18-state Sun Belt region is expected to add 19 million new residents over the next decade, while non-Sun Belt states would add just 3 million people, according to a 2019 Clarion Partners report.

“Atlanta is enjoying an influx of young adults, the demographic most likely to form renter households,” Marcus & Millichap wrote in its third-quarter multifamily report for Metro Atlanta. “The 20- to 34-year-old cohort grew by 1.5%, or by nearly 19,000 people, in the last year alone. By comparison, the U.S. actually lost 74,000 individuals in that cohort as millennials continue to age.”

These demographic megatrends are what lured ICER to the Southeast as well, Jemal said. ICER is seeking to add 10,000 units over the next two years to its Sun Belt portfolio, mainly in Georgia, the Carolinas and potentially Alabama, Jemal said.

“For us, it's really focusing on where we feel we'll have more growth,” he said. “The Atlanta market is growing so fast and the market is moving so fast, probably between signing these deals under contract and closing, their values increased.”