Multi-Family News Run Down 08/01/2023.

The U.S. multi-family housing market has shown signs of recovery in Q2, with key markets in the Midwest and South displaying strong demand and rent growth. RMR Group’s $80 million acquisition of Carroll also marks its entry into the multi-family space, providing access to Sun Belt markets and $7 billion of assets under management. The Biden Administration introduced federal regulations to enhance renter protections, address hidden fees, and promote affordable housing initiatives. NMHC and the Biden administration collaborate on guidelines to streamline multi-family loans and encourage affordable housing developments.

Strong Demand Propels Key Apartment Markets in Q2

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Q2 Showing Some Signs of Recovery

The U.S. multi-family housing market is showing some signs of recovery in the second quarter of this year. Although it has not fully compensated for the impact of last year’s net move-outs, several vital markets are displaying signs of resilience, providing investors and developers with a renewed sense of optimism in those markets. RealPage Market Analytics recently released data highlighting the notable performance of various cities, with the Midwest’s Columbus, Ohio, taking the lead.

Overall Demand and Absorption

In Q2, the demand for apartments reached an impressive 83,450 units. However, the annual absorption remained in negative territory, with -44,096 units. Despite this, approximately half of the nation’s largest 50 apartment markets experienced a rebound in second-quarter demand, resulting in buoyant annual demand for these cities. Additionally, nine markets surpassed 100% of their annual demand in the same quarter.

The Shining Star: Columbus, Ohio

Columbus emerged as the top-performing city during this period. Home to Ohio State University and the state’s capital, the city witnessed an astonishing second-quarter apartment absorption that accounted for over 3,000% of its market’s annual apartment demand volume. With more than 1,400 units absorbed, this marked the most significant quarterly demand volume since Q2 of 2019. Moreover, the city is experiencing robust rent growth compared to its counterparts in different regions.

Resilient Midwest Markets

Apart from Columbus, two other Midwestern markets stood out in Q2. In Kansas City, Missouri, demand reached 322% of annual absorption. Minneapolis experienced a slightly lower demand of 160% of annual absorption. Kansas City also saw a significant % price increase of 5% in annual rent growth, twice the U.S. average for the quarter. However, in Minneapolis, demand has yet to translate into substantial rent growth.

Atlanta’s Strong Demand Still Results in Rent Cuts

Atlanta experienced robust apartment demand during Q2, absorbing over 2,950 units. However, the demand needed to catch up with the surge in new apartment constructions, leading to rent cuts in existing buildings. New developments led to temporary reductions in rental prices across the Atlanta Metro.

Southern Markets Holding Strong

Other Southern markets also fared well, with demand accounting for 135% to 290% of annual volumes in Washington, D.C., Fort Worth, Texas, and West Palm Beach, Florida. Fort Worth notably outperformed its more prominent neighbor, Dallas, in terms of share of demand in the metroplex area.

Strong Demand in the West

Seattle and Denver showed strong demand in Q2, accounting for 135% to 180% of annual absorption, indicating positive trends in the multi-family market for these cities.

Key Markets Displaying Strong Rent Growth & Demand

The multi-family housing market in the U.S. demonstrated signs of recovery and resilience during the year’s second quarter. Although not fully recovered from last year’s net move-outs, key markets in the Midwest and South displayed strong demand and rent growth. Columbus, Kansas City, and Minneapolis shone as top performers in the Midwest, while Atlanta experienced strong demand and experienced rent cuts due to an influx of new developments. In the South, Washington, D.C., Fort Worth, and West Palm Beach exhibited solid demand, with Fort Worth overtaking Dallas in its share of demand. The West also saw positive trends, with Seattle and Denver showing strong demand.

RMR Group's $80M Acquisition of Carroll Signals a Strong Entry into Multi-family Space

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The RMR Group Makes Substantial Move into Multi-family Space

The RMR Group, based in Newton, Mass., has acquired MPC Holdings, commonly known as Carroll, in an all-cash transaction for $80 million. This move marks RMR’s first substantial step into the multi-family space, a vital piece that the company still needs to include in its diverse commercial real estate portfolio. With this acquisition, RMR gains access to a seasoned platform with a substantial presence in Sun Belt markets and adds $7 billion of assets under management (AUM) to its existing portfolio.

A Strategic Acquisition

The acquisition of Carroll presents a strategic opportunity for RMR Group to expand its portfolio and enter the multi-family market, filling a crucial gap in its diverse real estate investment management platform. Adding Carroll’s multi-family platform and assets brings RMR’s total AUM to an impressive $44 billion and grants access to over 20 institutional partnerships.

Carroll’s Impressive Portfolio

Atlanta-based Carroll boasts an extensive portfolio comprising 28,000 units across 81 multi-family properties in Sun Belt markets. This strategic positioning aligns with the Sun Belt region’s continued growth and investment interest, driven by population migration and strong tailwinds over the past several years.

Solid Track Record and Expertise

Carroll’s track record is commendable, having executed over $12 billion in acquisitions since its inception in 2004, with an average gross realized return of 30 percent. The company’s general partner fund series holds $3 billion of dry powder for future investments, indicating a promising outlook for continued growth.

A Synergistic Partnership

RMR’s acquisition of Carroll is expected to foster a synergistic partnership. While founder and CEO Patrick Carroll will depart after the transaction closes, RMR plans to retain Carroll’s 700 employees, leveraging their expertise in capital raising, acquisitions, asset management, and property management through the ARIUM Living consumer brand.

Sun Belt Foothold

The acquisition also grants RMR a significant foothold in the lucrative Sun Belt region, a mecca for multi-family investment due to strong demand driven by population migration. Sun Belt states’ continued growth and appeal are expected to fuel the multi-family sector’s dynamics and contribute to RMR’s expansion in the multi-family space.

Future Growth Prospects

RMR Group sees the acquisition of Carroll as just the beginning of its multi-family venture. The company’s strong financial position, with no debt and over $200 million in cash after the transaction, allows them to explore future acquisitions and grow the Carroll platform further.

RMR Fills Crucial Gap in Diversifying Their Real Estate Portfolio

The RMR Group’s $80 million acquisition of Carroll marks an essential milestone in the firm’s journey into the multi-family space. By acquiring a seasoned platform with a significant presence in Sun Belt markets, RMR has filled a crucial gap in its diverse real estate investment management portfolio. This strategic move will likely position RMR for continued growth and success in the multi-family sector, taking advantage of the Sun Belt region’s strong demand and promising prospects. As the transaction is set to close in the coming months, the multi-family industry will keenly observe RMR’s progress and potential further expansion in this competitive market.

New Federal Regulations Impact Multi-family Operators: Renter Reports and Renter Protections

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Biden Administration Takes Steps to Enhance Renter Protections

Multi-family operators and investors should be aware of recent federal regulations and initiatives to protect renters and improve transparency in the rental housing market. The Biden Administration has taken steps to enhance renter protections and ensure compliance with the Fair Credit Reporting Act for tenant screening reports. Additionally, the government plans to address hidden fees and barriers to affordable housing, offering funding and programs for communities and encouraging regional partnerships.

Improved Renter Reports Compliance

Federal regulations now require residential operators to adhere to the Fair Credit Reporting Act when using tenant screening reports. In cases of adverse actions, such as denying an application or charging a higher rent, operators must provide applicants or tenants with a written, oral, or electronic notice. The notice must include the source of information, the credit reporting agency’s details, and the individual’s right to dispute any inaccurate information. Operators must also provide information on credit scores, including the score’s description, source, creation date, and critical factors affecting it. Non-compliance may lead to consumer complaints and potential government intervention.

Biden Administration’s Focus on Renter Protections

The Biden Administration is taking significant steps to protect renters and address housing challenges. Despite the predominance of state and local governments in rental housing regulation, the federal government can influence policies and protections. The focus is on eliminating excessive fees, such as application fees that exceed background check costs and “junk fees” that surprise renters. These hidden fees make it difficult for renters to compare options and make informed decisions.

Funding for Affordable Housing

To promote affordable housing production and preservation, the Department of Housing and Urban Development (HUD) is launching an $85 million program that provides funding to communities to remove barriers to affordable housing. This includes planning and policy activities, rezoning for higher-density housing, and streamlining affordable housing development. Additionally, the Department of Transportation’s Reconnecting Communities and Neighborhoods (RCN) program allocates $3.16 billion for projects prioritizing disadvantaged communities, improving access to affordable housing, and addressing mobility challenges.

Simplified Underwriting for Multi-family Loans

HUD has increased the dollar amount threshold for considering a multi-family loan as a large loan from $75 million to $120 million. This change simplifies underwriting and reduces development costs for large multi-family properties financed with FHA-insured mortgages. This move aims to expand commitments for affordable housing financing without presenting an undue risk to FHA.

Affordable Housing and Regional Partnerships Offer Potential Opportunities

Compliance with the Fair Credit Reporting Act is essential for operators when using tenant screening reports, and providing clear information to applicants or tenants about adverse actions is crucial. The Biden Administration’s focus on renter protections and eliminating hidden fees will enhance transparency and fairness in the rental market. Additionally, the funding and programs for affordable housing and regional partnerships offer potential opportunities for investors to contribute to the growth and improvement of affordable housing initiatives.

NMHC Collaborates with HUD to Boost Housing Supply

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Regulatory and Legislative Measures Aim to Expand Affordable and Quality Housing

National Multi-family Housing Council (NMHC) representatives recently met with officials from the U.S. Department of Housing and Urban Development (HUD) to address the pressing need for increased housing supply in the nation. The discussion focused on regulatory and legislative measures to expand the availability of affordable and quality housing. In parallel, the White House introduced actions to protect renters and lower housing costs, aligning with the “Renters Bill of Rights” and “Housing Supply Action Plan.”

The Need for Increased Affordable Housing Supply

The nation is experiencing a significant shortage of affordable housing, impacting millions of people in need. According to the National Low Income Housing Coalition, the shortage of affordable homes available to renters increased to 7.3 million in 2021. Addressing this housing crisis has become a priority for the NMHC and the Biden administration, leading to discussions on boosting housing supply.

HUD’s Steps Within Existing Authority

The options discussed at the NMHC and HUD’s meeting fall within HUD’s existing authority and do not require new legislation. This means that HUD can take steps to facilitate the development of new housing supply and lower housing costs without seeking additional congressional approval.

Actions to Increase Housing Development

The Biden administration announced actions to increase the development of new housing supply. This includes reducing restrictive and costly land use and zoning rules to encourage housing development. Additionally, the administration plans to increase financing for affordable, energy-efficient, and resilient housing. It encourages residential conversion projects, especially for affordable and zero-emission communities.

Actions to Protect Renters

Alongside promoting new housing supply, the administration introduced measures to protect renters. These include ensuring that residents can address incorrect tenant screening reports, funding tenant organization efforts, and ensuring renters are given fair notice before eviction.

Resident Engagement and Advocacy

To support renter protection, the administration plans to increase resident engagement requirements and prioritize engagement with tenants, tenant organizers, and advocacy organizations. These steps aim to empower renters and enhance their rights within the housing market.

Housing Supply and Tenant Protections Will Impact Multi-family Market

The efforts by the NMHC and the Biden administration to address the housing crisis and protect renters signify a significant focus on the multi-family housing sector. The push for increased housing supply and tenant protections will likely impact the multi-family market.

Carter Expands Portfolio with Tampa Multi-family Acquisition

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Carter Multi-family Expands in Tampa Florida

Carter Multi-family, a division of Carter Funds specializing in value-add multi-family real estate, recently acquired Mode at Ballast Point in Tampa, Florida, for $57.5 million. The 276-unit garden-style property, now rebranded as “Mode at Ballast Point,” is strategically located near prominent retail and job hubs, significant employers, and healthcare institutions in Tampa. The acquisition aligns with Carter Multi-family’s plans to execute a value-add strategy, including operational improvements, interior unit renovations, and upgrades to community amenities.

Strategic Location in a Thriving Multi-family Market

Mode at Ballast Point is strategically located in South Tampa, offering convenient access to major employers, entertainment options, outdoor amenities, and waterfront paths along Bayshore Boulevard. The Tampa metro area experienced a remarkable 4.3% year-over-year employment growth rate as of May 2023, surpassing the Florida and national employment growth rates. This indicates the region’s strong economic potential, making it an attractive market for multi-family investments.

Value-Add Strategy

Carter Multi-family plans to reposition Mode at Ballast Point through a value-add strategy. This strategy includes operational improvements, upgrades to community amenities, interior unit renovations, and exterior building improvements. By enhancing the property’s features and overall appeal, Carter Multi-family aims to attract renters seeking high-quality and affordable apartments.

Positive Renter Demographics and Growing Economy

Tampa’s favorable renter demographics, desirable climate, and growing economy contribute to its status as an attractive multi-family market. The city’s proximity to major employers, including MacDill Air Force Base, which employs over 19,000 personnel, enhances its appeal to potential renters seeking convenient living near significant employers.

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