Suburban Baltimore Apartment Properties Sell For Combined $84M Despite Market Headwinds

Amid rising interest rates and economic uncertainty, investors continue to find value-add apartment complexes in Baltimore-area suburbs attractive.  

A pair of entities has snatched up two suburban, garden-style properties in deals totaling more than $84M combined that were announced this week. The moves come as the outlook for the Baltimore area multifamily market remains strong, despite analysts projecting the region's job market to soften in 2023.  

Excelsa Properties made the larger deal of the two. The Bethesda-based firm said Monday it bought the 325-unit Columbia Pointe apartments in downtown Columbia for $78M. It made the investment using its Excelsa US Real Estate II LP fund, which it announced in May had raised $153M. 

Excelsa intends to invest $3.2M to renovate 165 units housed in a residential tower and 14 garden-style buildings on 18 acres. In 2016, a previous owner replaced the roof and windows on the asset that was delivered in 1972.  

"With current occupancy of 95%, this investment supports a very high going-in yield," Excelsa Properties Chief Operating Officer Jon Woods said in a statement. "Given the need for housing in the growing and thriving community of Columbia, we also see an opportunity to add value to the property through unit renovations, further strengthening yield."

Also this week, Harbor Stone Advisors, representing the seller in the deal, announced the sale of the 60-unit Maiden Choice apartments in Baltimore County. Maiden Choice is a midsized garden-style asset with a mix of efficiency, studio, one-bedroom and two-bedroom units.  

Property records show the apartments were purchased for $6.65M in late October by Maiden Choice Association LLC, which according to Stone Harbor Advisors, owns similar properties in the area. Property records list the previous owner as William J Fisher & Associates, which owned the property since 1997.  

"Suburban, middle-market apartment assets with a value add component have continued to attract significant buyer attention, even amidst a rising interest rate environment," Harbor Stone Advisors Director Justin Verner said in a  statement. 

However, the outlook for Baltimore-area apartments isn't all upside.  

In an outlook report released in the second quarter of this year, Fannie Mae found demand for apartments in the region to be "slowing somewhat."

Headwinds in the Baltimore region include weak population and labor force growth, with the population just barely growing even before the pandemic.  

Of the largest 25 economies in the nation, Baltimore had the sixth-highest share of residents at least 65 years old, trailing only "retirement havens" such as Tampa, Miami and Phoenix.

On the other hand, even the headwinds slowing the Baltimore area's multifamily market included positive caveats for apartment investors.  

"However, while retirees do not typically rent, they will require medical services, so there is some upside for Baltimore’s healthcare-driven economy," according to Fannie Mae.  

At the same time, Fannie Mae analysts found the region's average vacancy rates "ticked up" to 3.8% during the first half of 2022, while asking rents increased a "whopping" 2.3% during the same time frame.  

"While job growth is likely to slow somewhat in 2023, apartment supply is also slowing down, so the apartment market is likely to remain in healthy shape," according to the Fannie Mae market outlook. 

Suburban apartment markets also have a healthier supply-and-demand balance than Baltimore's urban market.   

Tax incentives offered by the city have resulted in developers converting more than 2M SF of outdated offices into apartments. As a result, vacancies downtown are double the metrowide average.

The region today has 5,400 units under construction, with 40% of those units in the city. That is roughly 20% lower than the number of units in the pipeline two years ago, according to Fannie Mae, and only constitutes a 2.5% increase in inventory.