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In Atlanta Suburbs, Apartment Investors Swarm to B's Like Honey

Value-Seeking Investors Find What They Want Outside the City
June 8, 2018
Pictured: Chatsworth Apartments in Roswell, GA, one of two communities sold earlier this week by Titan Real Estate Investment Group and Investcorp International.

While shiny new apartments in Atlanta's Midtown and Buckhead areas garner more attention, its the decades-old multifamily buildings in the suburbs that are catching the eye of value-seeking investors.

In the past eight weeks alone, investors have snapped up several large, 1970s- and 1980s-era Class B apartments in suburbs such as Roswell, GA, and Lithia Springs, GA. The appetite for such properties is so large that owners like Titan Real Estate and Investcorp International couldn't resist the offers they received and have decided to sell their apartment communities earlier than anticipated.

Suburban Class B apartments have become an investment darling because they offer solid returns as rents increase, plus generally high occupancy rates. By investing $5,000 to $10,000 per unit, buyers can upgrade older properties and reap nice returns when they sell, CBRE Vice President Kevin Geiger told CoStar News.

In the past week, the Titan/Investcorp partnership said they sold two large suburban apartment communities the venture acquired in a portfolio deal back in 2015 for $86.5 million. The first was Manchester at Mansell, a 468-unit community at 401 Huntington Drive in Roswell. An institutional investor, which Geiger declined to name at the buyer's request, acquired the community, built in 1984.

In the second transaction, ECI Group of Atlanta acquired Chatsworth Apartments, a 410-unit community on North Hill Parkway near the Interstate 285 Perimeter. Chatsworth was built in 1980.

"Across the board, we're seeing heavy demand for B-grade value-add from investors," said Geiger, who represented the seller in both transactions. "The organic rent growth was much stronger than they expected."

As a result, the investors reached their return goals quicker than anticipated and decided to strike while demand is spiking.

At about 4 percent, rent growth across Atlanta multifamily "has been remarkably stable for a construction-heavy metro," CoStar Senior Market Analyst Ben Braley said in a new multifamily market report. Older assets also "have a long rent-growth runway" because they are still much more affordable than rents at newly built properties, he added.

"The current rent gains are now being driven by 3-Star and old 4-Star assets, as competition continues to expand among new deliveries offering concessions," Braley said. "Projects in outlying submarkets are also experiencing stronger-than-average rent growth simply because they still represent value for most renters."

The trend should continue, Braley said, because "of relatively limited amounts of new construction outside of the urban core."

Geiger agreed. He said just 20 percent of Atlanta's new multifamily supply is being delivered in the suburbs - quite a change from 20 years ago, when suburban development dominated. "It's completely flipped," he said.

For more information on the Manchester at Mansell sale, please see CoStar Comp #4284898. Additional information on the Chatsworth deal can be found at Comp #4284607.

Tony Wilbert, Atlanta Market Reporter  CoStar Group   
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