In a recent article for Multifamily Executive, author Mary Salmonsen discussed what she learned from the MFE Conference in Las Vegas and why some suburban areas across the nation could provide favorable investing conditions for investors, asset managers, and developers.
Despite some fundamental differences and the inherent unknowns that come with penetrating a new market, multiple industry pundits believe the risks might not be as bad one may think.
“I’m convinced that, even at this point in the cycle, you can go to the suburban categories, the right kind of suburbs, and not add any risk to your investment strategy, but actually also achieve a better yield and save a risk-adjusted return,” said Jay Parsons, vice president of MPF Yieldstar, in the opening section of his panel presentation “The Nation’s Strongest Under the Radar Markets,” held Sept. 19 at the MFE Conference in Las Vegas.
Parsons didn’t overlook the obvious advantages of investing in dense, urban areas. He noted factors like construction incentives and more willing investors as main reasons why urban areas are so attractive for multifamily investments and developments. But at the same time, Parsons lists those same urban market strengths as potential barriers as well, due to the cost of investor capital and the extended time it takes to build.
On the other hand, suburban areas have their own barriers to entry. In many cases, suburban cities have more restrictive zoning laws against multifamily properties. Furthermore, suburban locals might show ‘not in my backyard’ resistance to multifamily construction. Having said that, those who can bypass suburban barriers could be in line for better yields with little to no added risk.
Zillow senior economist, Aaron Terrazas, followed Parsons by taking a more detailed look at the flucuation of rent growth in the country’s strongest metros and cross-examining his findings with Zillow’s ZIP code-level rent appreciation data. He accredited market rent growth to specific local factors like Atlanta’s infrastructure and lifestyle investments or Sacramento being a satellite market to the Bay Area. In summary, Terrazas found that each smaller market that experienced growth had a unique factor that could make it a more attractive to investors and developers than a broader, national report might suggest.
“The reality today is everybody has to do their homework,” Terrazas said. “There’s no single national narrative. Things are local, the story’s local, and you have to look at the whole data to understand what’s happening here. You can’t just take a single national line.”