I work in the LP space of the multi family world and I’m starting to see a lot of sponsors pitch market rate workforce housing, suburban garden product in Atlanta, Charlotte, dfw, Houston type markets with around a $150k/unit basis. Granted rent growth has remained pretty strong in the b/c space, I wanted to get your thoughts on the viability of this strategy.
-Would there be a deep enough pool of long term investors to provide a viable exit to merchant equity?
-Will all the class A product coming on line today be a direct competitor with product built to a b grade level.
-have many of you seen many sponsors push this strategy? What have your thoughts been?
-any other concerns any of you have on this emerging shift toward more production of market rate workforce housing?
I work for a LP that is extremely active in this space. We have acquired somewhere around 7,500 market rate workforce housing units over the past 36 months, and I expect that pace to continue. At the end of the day we are looking for properties that are filled with tenants that are renters by necessity, not by choice. We believe this is the deepest and most durable part of the renter population. A lot of these properties are still owned (and mismanaged) by small operators. We have experienced a lot of success aggregating these properties and running them properly. The amount of interest in these properties has exploded recently. 5 - 7 years ago we used to see 3 -4 groups show up to bid on these properties. Now we see 10+ on every transaction.
I agree with the comments that others have posted. You can't buy these properties, put in high end finishes (hard surface counter tops, vinyl plank flooring, stainless steel appliances) and expect these tenants to pay up. It's about knowing exactly what things people will pay maybe $50 - $100 more for. Given the lower rents per sq. ft. and the fixed operating expenses, running these efficiently is crucial to success. I don't advocate being a slum lord, but no tenant in these properties cares about seasonal flower plantings, community engagement events, and extra services. They want a safe, clean, and affordable place to live.
I'm all in on this as an investment strategy so I'm happy to answer any questions you might have.