Multifamily investors continue to be eager to purchase value-add apartment assets. The challenge is to find the right property.
“Many of the easy deals already have been done,” says Greg Willett, chief economist for Richardson, Texas-based RealPage Inc., a provider of property management software and services.
For several years, value-add investment has been a hot trend for apartment building buyers. Many older apartment properties have already been bought and at least partially renovated to earn more income. Also, more investors have become interested in renovating older apartment buildings, increasing the competition to buy these properties.
However, new construction and rising rents continue to create new opportunities to upgrade older assets. “The basic fundamentals that have made value-add multifamily an attractive investment thesis are still in place,” says Chuck Johanns, executive vice president in the multifamily division of JLL Capital Markets.
Attractive properties get a lot of attention
Any promising value-add property is likely to have a lot of potential buyers. “There are still value-add opportunities out there that make sense. The challenge right now is the highly competitive environment,” says Johanns.
Private equity fund managers have become particularly interested. More than 40 percent of all real estate investment dollars raised in 2017 by private equity funds were raised for value-add investments, according to JLL. That’s a tremendous amount of capital targeting what had once been a niche investment strategy.
Meanwhile, the apartment buildings don’t even need to be that old to fit into the value add bucket now, according to Willett. “There’s actually a pretty big difference…