Forget the Sunbelt. These 8 slides show why multi-family-home investors should be turning their attention north to these five cities.
- Multi-family-home investors have flocked to Sunbelt cities like Austin and Nashville.
- But the rush to build threatens to lower Sunbelt rental streams by creating too much supply.
- It’s one reason real-estate investor Jones Street is looking north to these 5 cities.
The recent real-estate buying frenzy may be coming to an end, but there are still plenty of opportunities for multi-family home investors. The best deals are no longer in the Sunbelt, but rather on the East Coast.
That’s according to Matt Frazier, CEO and cofounder of Jones Street Investment Partners, a multifamily investor with approximately $2 billion in assets under management. Frazier believes that the best opportunities have shifted from southern cities such as Austin, Texas, and Nashville, Tennessee, to smaller New England cities such as Portland, Maine, and Mid-Atlantic hubs such as Richmond, Virginia.
Of course, Jones Street’s entire portfolio is focused on multi-family homes in the Northeast and Mid-Atlantic. Nonetheless, he’s created a compelling slideshow that explains why the dynamics have shifted in these regions’ favor. Since Jones Street’s inception in 2014, the industry has been obsessed with the Sunbelt.
“We came out of the investment world, not out of the real estate world, and our observation was that there was a dangerous amount of groupthink in the industry,” Frazier said in an interview.
One of the main reasons for moving north, according to Frazier, is the impending “supply glut,” or fears that a rush of multifamily construction “could flip the script on the supply and demand imbalance,” threatening to lower rental income. According to Jones Street, “this dynamic is specific to Southeast and Sunbelt markets,” rather than the Northeast and Mid-Atlantic.
“Over the next four years, the number of multifamily units delivered in the NeMA is projected to average 1.4% of total supply, which is less than historical averages and less than the 2.2% expected in the Southeast and Sunbelt markets,” the company wrote in a recent investor note obtained by Insider.
Furthermore, due to higher building costs and bureaucratic government control over zoning, supply in the Northeast and Mid-Atlantic regions is unlikely to surge suddenly.
“The current supply and demand imbalance is unlikely to be corrected anytime soon,” the company stated in the report. Indeed, Jones Street estimates that even if the rate of new housing construction doubled compared to historical norms, “it would still take 20 years to find supply and demand equilibrium.”
Jones Street is ready to seize opportunities with $440 billion in multifamily loans due by the end of 2024 and many operators underwater on their investments.
“This really substantial wave of loan maturities doesn’t necessarily mean there’s going to be blood in the streets and a lot of distress, but it certainly will create more deal flow,” Frazier went on to say.
Frazier walked Insider through a Jones Street whitepaper that outlined this thesis and shared some charts created by his investor relations team to demonstrate why the company is focusing on smaller markets in the Northeast and Midatlantic, where the fundamentals are good but investment demand, and thus pricing, is lower, such as Manchester, New Hampshire, Boston, Massachusetts, Portland, Maine, Philadelphia, Pennsylvania, and Richmond, Virginia.
