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VOL. 9 | NO. 44 | Saturday, October 29, 2016

Local Multifamily Market Continues To Log Higher Sales, Strong Demand

By K. DENISE JENNINGS

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Multifamily real estate sales have been strong in Memphis for a couple of years, and the 41 transactions posted in the third quarter mark the most recorded in a quarter in two years.

“The multifamily market continues to be very strong and has been the strongest real estate sector for the past several years,” said Mark Fogelman, president of Memphis-based Fogelman Management Group, a national multifamily property management company.

CBRE Memphis’ multifamily summary for second quarter 2016 shows a 93.2 percent total occupancy rate, with the percentage near 96 percent in properties built since the 1990s and positive absorption of 1,375 units. Market rents are up 4.7 percent overall, with rents up an average of 7.9 percent for properties built since the 2000s.

Fogelman said the primary factors driving the market are low homeownership rates; strong demographic trends, with 21- to 35-year-olds – the age group that historically has been most likely to rent – comprising the largest segment of the population; strong job growth; and low employment.

While multifamily sales have been strong nationwide for some time, Memphis is a little late to the game.

“It was one of the last markets to rise among the 25 markets or cities we operate in around the country,” Fogelman said. “A lot of this has to do with the fact that the Memphis economics/jobs picture is not quite as dynamic as other cities we own or manage in, such as Austin, Dallas, Charlotte, Raleigh, Atlanta and Nashville. The Memphis market has always been fairly slow and steady, but has shown some surprising strength over the past 12 months.”

Tom Intrator, principal managing partner at New York City-based Hyde Capital, which has heavily invested in the Memphis multifamily market since 2013, agreed.

“Tennessee doesn’t have the exposure with as much industry risk,” Intrator said. “Its markets are more diversified.”

Blake Pera, vice chairman of ARA Newmark, a national full-service investment advisory firm that handles 80 percent of the multifamily trades in the Memphis market, said investor interest is expected to remain strong for Memphis.

“Investors from coast to coast are seeing compelling buying opportunities and they are able to achieve attractive returns compared to similar product in other markets,” Pera said.

One thing that historically has benefited both the single-family and multifamily markets is that supply stays in step with demand, keeping rents high and protecting the market from the bubble risks.

“Memphis, as long as it continues to grow steadily, will be great for everybody,” Intrator said.

Hyde Capital is particularly interested in medium- to high-rise apartments in Midtown and selectively in Downtown Memphis, said Intrator. He believes that Midtown remains the best investment until Downtown rents rise closer to $2 a foot, compared with the current top rate of $1.60 a foot.

Hyde’s current projects include renovating the Blair Tower Apartments in the medical district as well as two mid-rise properties, Rosecrest Apartments on South Idlewild Street and Kimbrough Tower apartments, along with the adjacent Kimbrough Center office/retail building, on Union Avenue. The projects total $25.1 million in investments in the Memphis multifamily market this year.

“There is positive momentum heading into 2017, and supply is at a steady pace, so there should not be any imbalance from overbuilding if demand remains at current levels,” Pera said. “And with $8.5 million in announced development, demand should remain strong for the foreseeable future.”

RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 64 87 1,429
MORTGAGES 39 60 1,107
FORECLOSURE NOTICES 8 14 204
BUILDING PERMITS 92 209 3,265
BANKRUPTCIES 42 84 837
BUSINESS LICENSES 21 23 352
UTILITY CONNECTIONS 0 0 0
MARRIAGE LICENSES 0 0 0