August 2020 Edition - Good News for the North Carolina Triad Area
(Prepared for Multifamily Owners and Prospective Owners)
The North Carolina Triad area consists of 12 counties centrally located approximately half-way between the Raleigh/Durham/Chapel Hill/Research Triangle Park area to the east and the Charlotte/Mecklenburg MSA to the southwest. The three areas are all connected by Interstates 85 and 40. I-85 is a major east coast north-south interstate running from Montgomery, Alabama to Petersburg, Virginia. This interstate links the Triad to Atlanta, Georgia, Greenville/Spartanburg, South Carolina, and Charlotte, North Carolina. Interstate 40 is an east-west interstate running for the Pacific Ocean to the Atlantic Ocean. I-40 runs through the Triad and connects the area to Raleigh/Durham/Chapel Hill/ Research Triangle Park.
The 12 counties of the Triad are Guilford, Forsyth, Alamance, Randolph, Montgomery, Davidson, David, Yadkin, Surry, Rockingham and Caswell. The total population is 1.6 million and growing with the majority of the population concentrated in the cites of Greensboro (296,710), Winston-Salem/Clemmons (268,812), High Point (112,791) and the Alamance County towns of Burlington/Graham/Mebane (80,152). The Triad market is the third largest market in North Carolina behind the Charlotte/Mecklenburg MSA and the Raleigh/Durham/Chapel Hill/Research Triangle Park area.
From April 1st of this year to May 15th , while dealing with the coronavirus, the Triad market outperformed the Charlotte and Raleigh/Durham area markets in sales volume of multifamily properties. During this time period the cities of Greensboro, Winston-Salem and Burlington, recorded almost $184 million in sales surpassing the Charlotte area by about $26.5 million and the Raleigh/Durham area by about $81.5 million. Greensboro captured about 83% of deal volume in the region. High occupancy levels, steady rent growth, the market’s limited new supply, strong fundamentals and steady returns on investment all contributed to attracting investor interest in the area. Two property sales in particular, the sale of the 320-unit Bridford Lake Apartments in Greensboro for $51.5 million ($161,000/door) and the 360-unit Abbington Place Apartments in Greensboro for $51.1 million ($142,000/door), set the bar for Class A sales. Prices like this are not typical in the Triad market, as only 5% of the transactions over the past 12 months have sold for between $150,000 and $180,000/door. (CoStar)
How did this happen? The Triad area has a lot going for it in terms of growth, innovation, education and employment opportunities. Gateway Research Park in Greensboro and Innovation Quarter in Winston-Salem are great examples of growing research and education campuses attracting employers and talent to the area. Wake Forest University, Winston-Salem State University, and Salem College in Winston-Salem and the University of North Carolina-Greensboro, North Carolina A&T University, Greensboro College, Bennett College and Eon Law School are examples of institutes of higher education in Greensboro. The Triad has a great selection of spacious, newer apartments at reasonable rates with great local entertainment and amenities. The lower cost and quality of living is very appealing to today’s work from home/remote workers that appreciate the relaxed community living but still need access to larger metropolitan areas. The Triad offers easy interstate access to both the Charlotte MSA and Raleigh/Durham/chapel Hill/Research Triangle Park and has a prime location on the eastern seaboard!
How did this happen? The Triad area has a lot going for it in terms of growth, innovation, education and employment opportunities. Gateway Research Park in Greensboro and Innovation Quarter in Winston-Salem are great examples of growing research and education campuses attracting employers and talent to the area. Wake Forest University, Winston-Salem State University, and Salem College in Winston-Salem and the University of North Carolina-Greensboro, North Carolina A&T University, Greensboro College, Bennett College and Eon Law School are examples of institutes of higher education in Greensboro. The Triad has a great selection of spacious, newer apartments at reasonable rates with great local entertainment and amenities. The lower cost and quality of living is very appealing to today’s work from home/remote workers that appreciate the relaxed community living but still need access to larger metropolitan areas. The Triad offers easy interstate access to both the Charlotte MSA and Raleigh/Durham/chapel Hill/Research Triangle Park and has a prime location on the eastern seaboard!
The Triad’s multifamily fundaments were strong before the coronavirus pandemic, have remained strong during the pandemic and will continue to be strong once the crisis is over and our overall economy returns to a more normal state. Real estate mogul Sam Zell, a billionaire and the founder and chairman of Equity Group Investments, predicts the country to be back on track for a U-shaped recovery with an upswing beginning this fall. The coronavirus is credited with being one of the driving forces pushing residents, companies and commercial real estate investors out of congested large urban areas to non-metro secondary and tertiary markets such as the Carolinas and Virginia. Our entire market area (North Carolina, South Carolina and Virginia) will benefit from this migration. We are already seeing population growth and big company relocations. According to a Marcus & Millichap report that focuses on migration and commercial real estate impacts, “smaller areas are taking a big bite out of all commercial real estate deals.” Firms are opting for smaller markets not only because of the coronavirus but because it reduces their overhead cost. Investors like the smaller markets because their entry costs into the area are lower, there has been less competition from other investors, CAP rates are higher and yields are healthy.
In general, the multifamily is doing extremely well. Investor interest is currently overwhelming supply. Transaction activities are slower than they could be because many buyers and sellers are not on the same page about how much a property is worth amid the pandemic. “This spread between what an owner thinks his property is worth and what a buyer thinks is a percentage probably immense compared to previous periods.” (Sam Zell). Owner/Sellers are coming back to the market more slowly than investors. If you look at property operations and cash flows at two periods of time – the end of December 2019 and the end of June 2020 – there aren’t a lot of material differences in rents, collections and the pricing for buying and selling apartment assets. Eric Silverman, co-founder and managing partner of Eastham Capital, states that “discounts are rapidly disappearing” and he believes “more deals will be coming to the market in the second half of the year.”
“Just-In-Case You Missed It” is a monthly letter prepared for multifamily owners and prospective owners. It is a compilation of multiple articles from multiple sources or a reprint of an article from a specific source (source credit given). Its purpose is to present both facts and opinions that may influence our multifamily business in the Southeastern U.S. If you have any questions and/or would like to discuss any of the comments above, my conclusions or your multifamily business, please contact me at your convenience. I can be a valuable resource to you without adding any expense to your budget. I look forward to speaking with you and having an opportunity to meet with you. I am always at your disposal to assist you with your multifamily business. If you would like to review previous editions of my monthly “Just-In-Case You Missed It” letter please refer to articles on my LinkedIn site.
Respectfully,
Rick
G.F. Rick Baker, CCIM
Multifamily Specialist/Investment Advisor
www.RickBakerMultifamily.com
2504 Tinderbox Ln.
Greensboro, NC 27455
Cell: 336.549.6083