REAL ESTATE NEWS

American Landmark's multifamily Sunbelt portfolio is poised for robust growth as the company charts its course into 2025, buoyed by strong demographic trends and strategic positioning in key markets. This optimistic outlook comes as the real estate firm capitalizes on the region's continued population influx and employment growth, despite concerns of oversupply in some urban centers.

"We do see in the Sunbelt that we are able to incrementally raise rents, again, not with the exuberance of several years ago, but we see very good retention and incremental rent increases, good occupancy, and good collections, provided you deliver great amenities, great living environment, and great customer service," Joe Lubeck, CEO of the CRE firm, told GlobeSt.

SUNBELT DEMOGRAPHICS ARE STRONG BUT OVERSUPPLY IS A CONCERN

Lubeck, who will be a speaker at our multifamily panel on April 1 in New York City, attributed the performance to the "continued" population and employment growth the region has been witnessing.

Lubeck also noted that some gateway markets like Boston and New York have been seeing some success in the multifamily space, although the company isn't active in either of those regions.

While many multifamily landlords have touted encouraging demographic trends in the Sunbelt area, the one concern has been oversupply, which has caused some headaches. Particularly, Lubeck sees this mixed profile in Austin and Nashville.

"They're great cities but we're very concerned about overbuilding in the central business districts," he said.

However, to American's fortune, most of its portfolio is located in the inner suburbs, which is where it is seeing strong renter demand. Lubeck noted the Tampa, Florida-based firm's four largest markets are all in Texas (Austin, Dallas, Houston, and San Antonio). According to American, it also has communities in Georgia, the Carolinas, and Tennessee.

Also, another advantage American has in the Sunbelt is most of the region tends to be more business-friendly.

"Landlord and tenant rules and laws are much more balanced, not favorable one way or the other — but balanced. And we continue to see job growth and population growth in all of our markets, so we feel good about them," said Lubeck.

SELLING PROPERTIES AFTER RETURNS ARE MAXIMIZED

While Lubeck admitted that CRE conditions have yet to return to a more favorable environment seen a few years ago, he is starting to see what he calls a "return" to normalcy. While the Federal Reserve has not shown more willingness to cut interest rates further, he refers to cap rates in the five percent range as something that would fit the bill. In fact, in the fourth quarter, CBRE reported that average multifamily going-in cap rates stayed at 4.90 percent — which is around Lubeck's preferred range.

In the current state of the CRE market, American is actively looking at transactions with a focus on selling properties that have reached "targeted returns," according to Lubeck. Part of its strategy is buying properties that were built in 2000 or afterward and then adding amenities or upgrades to enhance the value of the property. After it has maximized the value of an asset — which Lubeck defines in part as when the internal rate of return hits the mid-teens — that's when it acts as a seller. This helps American achieve its main goal, which is to maximize both net operating income and returns for investors.

"As the market changes and as customer preferences change, we make [the property] attractive to the next buyer, who can then take it to the next level," Lubeck said.

Along with buying products that were created this century, it is also targeting suburban areas at favorable cap rates.

"It's great to buy when you can buy [at a] five cap rate and finance at five and a half," Lubeck explained.

INTEREST RATE CHANGES COULD IMPACT DEALS

Still, uncertainties remain. What will the Federal Reserve decide to do with interest rates, given that inflation is spiking again? If the central bank decides to hike them even a little from their current levels, that could impact CRE activity.

"Any deal that turns on a quarter point, from our view, is not a deal worth doing," Lubeck admitted.

"You need to have a little more cushion, a little more margin, and we deal with that both in our underwriting, in our acquisition choices, and in our leverage."

That said, Lubeck calls the multifamily sector the place in CRE "to be." All American can do now is point to the positive signs, which includes a return to regularly hiking rents across its Sunbelt portfolio, and hope the demand will continue in both the short and long term.

Source: GlobeSt/ALM