Land Prices and Falling Oil Prices Could Bring Suburban Apartment Resurgence

Falling oil prices are making Atlanta one of the new preferred multifamily investment markets. “Where are people going if they're not going to Houston?” asks Marcus & Millichap's Christopher Leonard. He says as energy-dependent economies like those in Texas—which boomed as core markets in recent years—begin to suffer from plummeting prices at the gas pump, institutional investors are seeking other markets for yield. “Atlanta is on that list. Denver's on that list. Charlotte's on that list,” Christopher says. And core markets are also dominated by foreign investors, who are “playing a different game”: Namely wealth preservation versus growth returns. Hence, foreign money is more willing to pay for sub-4 cap apartments.

Christopher was part of our first panel lineup yesterday during our 6th Annual Atlanta Multifamily Summit, which included CohnReznick's Kelly Winter (as moderator), Cocke Finkelstein's Neil Herceg and Hunt Mortgage Group's Keith Morris. Keith even says falling oil prices could go a long way into helping see a recovery in suburban apartments as consumers get more purchasing power.

Keith also says that lending caps placed upon Freddie Mac and Fannie Mae ($30B each for 2015) will see a resurgence in investments in small properties towards year's end. Both organizations have small balance loan programs that focus on affordable housing, manufactured loans and loans that can fund properties of up to 50 units that are not subject to the caps. Couple with tightening fundamentals in the Class-B and apartments, with little to no supply being added, Keith says we can see a surge in new development in that arena soon.

Cocke Finkelstein was part of what Freddie Mac spent so far this year. The firm received a $43.6M loan for its recent purchase of The Solace on Peachtree, reported here. And Cocke Finkelstein's Neil says you likely won't see anything less than upper-end Class-A developed in the ITP markets because land prices and construction prices force developers in that direction. But he also says he's skeptical that the more than 20,000 new apartment units planned for metro Atlanta will all see the light of day. “When you couple [land and construction costs] with banks possibly being more prudent than they have been in previous cycles, I question whether or not all 20,000 of those actually get delivered,” he says. “Just the nature of that combination, you're going to have a little bit of a tempered development.”