Why Investors Remain Optimistic in the Mid-Atlantic Market
A year like no other. Those few words could sum up the performance of the U.S. multifamily market in 2021, with multifamily transactions reaching $198 billion, more than double the 2020 total and a solid 55% above the pre-pandemic high of 2019, according to a recent Yardi Matrix multifamily report.
In line with national trends, the Mid-Atlantic multifamily market posted strong performance throughout 2021, fueled by steady demand and strong economic activity. While some metropolises performed better than others, the region as a whole saw improvement across the board, with investment levels rising, particularly in the fourth quarter.
Two experienced CBRE executives shared their thoughts on the mid-Atlantic multifamily investment market with Multi-dwelling news. Executive Vice President Michael Muldowney is part of the company’s Mid-Atlantic Multifamily Investment Properties team, while Peyton Cox is Vice President of CBRE’s Southern Virginia Multifamily Team.
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Over the past 12 months, which mid-Atlantic metros have been the most attractive to investors and why?
Coxswain: The Southern Virginia region as a whole had some of the strongest fundamentals in the Mid-Atlantic region, with the Richmond and Virginia Beach markets leading the way. This is due to a combination of post-COVID-19 trends that include the migration of millennials and the general population south from access markets in the northeast, as well as the stable economy that is has proven to be one of the most resilient multifamily markets nationwide in 2020.
Richmond was ranked first and Virginia Beach ranked eighth in the nation, according to a CBRE index that assessed market performance, including rental growth and vacancy. Another factor that has helped increase Virginia investor interest and support higher asset pricing is that Virginia was the first state to receive the rent relief program dollars distributed to landlords.
In a post-COVID-19 world, the diversity of Southern Virginia markets like Richmond and Hampton Roads ticked all the boxes for a reliable market with diverse jobs, including stable jobs in government sectors and quality of life. attractive height for digital nomads in the new remote work paradigm.
What sets Richmond apart from other major mid-Atlantic markets? What can you tell us about multifamily investment activity in the metropolitan area?
Coxswain: Richmond tops its per capita weight and has been overlooked by big investors for years as they skipped Richmond for markets like Raleigh, NC, and Washington, D.C. Richmond is home to seven Fortune 500 companies, is the state capital and has a terrific Eds & Meds pilot with VCU fueling the economy. Thus, you have an excellent quality of life from the point of view of work, education and leisure, but with the low cost of living and the possibility of getting anywhere in 15 minutes, which makes it a unique offering not found in more traditional, densely populated neighborhoods. markets.
Richmond is also in the midst of a transition from a base of sleepy, local and regional investors and developers to a much more competitive group of national and even international players who are bringing in institutional-grade capital, ideas and management. to this market that raises the bar. and benefit everyone.
In 2021, Baltimore saw a major migration from expensive coastal markets. What do you think drew people to this particular metro?
Muldowney: Baltimore’s booming industrial, maritime and logistics sectors were major drivers of the 69,500 new jobs that were added to the metro in 2021. Additionally, the Feds, Meds and Eds are constant and resilient drivers of exogenous forces such whether the COVID-19 pandemic or financial downturns.
Besides the larger metros, were there smaller cities in high demand?
Coxswain: Charlottesville and Williamsburg, Virginia. These are two smaller markets with strong college and tourist offerings that attract empty nesters and millennials.
Please give us some details about your investment activity across the Mid-Atlantic last year. Were there any noteworthy transactions?
Muldowney: In 2021 alone, the team completed $5.2 billion in sales transactions, including six major portfolio sales. One of the team’s most notable and high-profile transactions in 2021 included the sale of Barcroft Apartments, a 1,334-unit multi-family community in Arlington, Virginia that is one of the largest affordable housing complexes of Arlington County. Jair Lynch acquired the property which is now to be preserved for 99 years with the help of $310 million in loans from Amazon.com Inc. and Arlington County.
Other notable transactions include the sale of the MD-5 portfolio, consisting of workforce housing communities comprising 1,646 apartments and 1,395 townhouses, known as the Commons at White Marsh, Cove Village , Fontana Village, Harbor Point Estates and Whispering Woods; as well as the sale of The Millennium at Metropolitan Park, an apartment building directly across from where Amazon’s first HQ2 buildings are being built in Pentagon City.
How do you expect the Mid-Atlantic multifamily investment market to evolve in 2022?
- Sales volume will exceed 2021 figures by 10-15%.
- Construction costs rise and climb throughout the year, exceeding 10-15%, which will stress the ability to close deals in the majority of markets. With rising costs, as rent growth wanes, the result is a decline in new housing starts of around 15% for the year.
- Alternative lenders such as debt funds and mortgage REITs will continue to strengthen and become more aggressive in 2022.
- The ongoing economic recovery, job creation, wage growth, household formation and eventual reoccupation of workplaces will support multifamily demand in 2022. Strong growth in occupancy and rents has attracted activity growing investors in the Mid-Atlantic from a variety of capital sources, including both debt and equity, driving a record volume of sales transactions in 2021. Rent collection and Emergency tenant relief policies will remain a factor affecting lender underwriting and investment activity going forward.