Real estate investors pay for apartment transactions as rents soar

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The influx of money pushed prices up and made private equity firms behave like aggressive homebuyers in the frenzied housing market. Some investors are frustrated with the current prices of apartment buildings. But many are increasing their offers, forgoing inspections and promising to close quickly, with rising rents leading to a flurry of deals.

“This is what happens in a white-hot market,” said Matthew Lawton, executive general manager of JLL. “Some of them will sharpen the pencil on the next one and get a little more aggressive because they need to deploy that capital.”

One of the fallout from the pandemic housing market is the growing interest in apartment buildings, which are generally viewed as safe assets that provide a hedge against inflation. Soaring home prices in the United States, fueled by a shortage of inventory, have made it difficult for many potential buyers to find affordable properties, which is helping to drive up rents.

Turn

This is a radical turning point from the second quarter of last year, when Covid-19 lockdowns triggered massive job losses. Landlords feared the laid-off tenants would miss their payments, prompting investors to put acquisitions on hold until they could buy buildings at ridiculous prices.

But the government’s financial aid helped keep the rent checks coming and the rebates never came. Data compiled by the National Multifamily Housing Council showed that about 77% of renters made payments in the first week of last month, down slightly from 80% in the same period of 2019.

Cheap debt, combined with strong demand for housing during the pandemic, provides a rationale for buying apartments at rising prices. Meanwhile, investors who have accumulated dry powder in the hope of swallowing up distressed assets have been mostly disappointed.

One apartment owner who remained active was Morgan Properties. The company has partnered with Olayan American to buy more than 3,200 apartments in late September for $ 323 million. Over the next five months, he added about 17,000 units for $ 2.2 billion.

Blackstone, meanwhile, has acquired approximately 5,800 apartments in San Diego. In July, it struck a deal with American International to acquire affordable housing for $ 5.1 billion.

Biggest buyers

Blackstone and Morgan were the most buying apartment owners in the 12 months that ended in June, according to Real Capital Analytics. During the period, prices for apartment buildings jumped 12%.

“Most of our competitors were asking, ‘What is the Covid discount? ”Said Jason Morgan, director of Morgan Properties, which, after a series of transactions, is now the second-largest apartment owner in the United States. “We saw an opportunity to continue buying deals at attractive prices and at historically low funding levels. “

The rise in apartment building prices reflects homeowners’ belief that they can raise rents after a year in which many landlords have limited increases in hopes of maximizing occupancy. Leases that included free rent for months expire, increasing the amount of rejected income apartments.

Growing demand

There is now more demand for apartments from renters than at any time since the late 1970s, before baby boomers started buying homes, according to RealPage chief economist Greg Willett. These days, a shortage of sales listings is frustrating millennial buyers, and it’s helped push rents up 8.3% in the past year.

It is not uncommon to find 30 or 40 groups bidding for the same apartment offers, said Zamir Kazi, managing director of ZMR Capital. The company recently bought a $ 65 million apartment portfolio in Tampa, Florida, where it plans to do renovations and raise rents.

Competition is pushing real estate investors to ramp up offers and forgo due diligence, but the boiling real estate market justifies the risk, Kazi said.

“There is a real problem of supply and demand,” he said. “It’s eco 101.”


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