Investor interest in Sunbelt apartment complexes has slowed over the past year as rising interest rates and falling rents have left some properties struggling. But the opportunities are there for savvy players.
These are the words of Kyle Matthews, CEO of Matthews Real Estate Investment Services, a brokerage firm. real deal This week's podcast “Deconstruct”.
Many of the market dynamics that drew investors and developers to the Sunbelt have changed. Thanks to oversupply and financing costs, the value of multifamily and office properties is underground. While some investors are spooked by these changes, others, like Matthews, are enthusiastic.
“There's going to be some buying opportunities that come up over the next 12 to 24 months, but in five to seven years we'll look back and say, 'Oh my gosh, those guys killed it this year.' It's going to be a 'deal,''' Matthews said.
The region's multi-family housing woes are in stark contrast to just a few years ago, when favorable migration patterns, rising rents and low borrowing costs led to an investment boom. Matthews said bidding wars broke out across the region and properties changed hands at unsustainable prices.
On the other hand, large bets by developers supported by pro-development policies created an oversupply problem.
“If we let developers build, what are they going to do? They're going to keep building, building, building until they overbuild,” Matthews said.
As a result, rents have fallen and vacancies and hardship have increased. Mr Matthews warned that many owners would then be forced to surrender their buildings to lenders. This opens the door to some investors.
“I think opportunistic capital will start to re-enter the market knowing that we are, if not at the bottom, then very close to the bottom from a pricing perspective,” he said.
Matthews emphasized that ultimately it comes down to location, which is still an important element of real estate. Buying an affordable apartment complex in the right location can pay off.
“Rent us the best apartment complex on the best block any day of the week,” he said.
Matthews also sees potential in office investing, given the decline in value. He is particularly interested in assets just below Class A.
“Office may never return to its pre-coronavirus state, but it will return significantly from today's levels in terms of occupancy and rents,” he said.
Matthews also weighed in on industrial and retail properties, where distress is less common, but noted there are still good deals left. However, it may be difficult for investors to find them.
This sector has potential for growth over the next decade, especially due to the lack of development of medium-sized industries.
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