“Most investors looking in Atlanta can be placed into one of two categories; institutional Class A and B/C Value-Add. I focus on the B/C Value-Add sector, which is mostly larger suburban properties built in the 1970s, 1980s and 1990s. Atlanta had tremendous growth during these three decades, with most of its suburban apartment stock being built then.
The bulk of new construction in Atlanta has focused on the urban core, with relatively few new suburban projects delivered. The two main reasons for the lack of new suburban apartment supply are: 1) the rents in these submarkets are not high enough to justify the cost of construction, 2) the ‘not in my back yard’ mentality for new apartments in many of the suburban communities.
This lack of new suburban product has given investors the necessary “gap” in Class A rents and Class B/C rents to spend money on value-add improvements that will push rents higher, but still be much lower than the rents at Class A properties. Generally, investors want to see rental lifts of $150 – $300/unit/month in order to justify the expense of $5,000-$10,000/unit in improvements that most value-add investors spend.
The value-add improvements are bringing the older B/C communities into the 21st century. These improvements create a contemporary apartment community, which attracts quality renters looking for a nice place to live, at a relative value when compared to the rents at Class A communities.”
Chad DeFoor, CPM, CCIM
Senior Director for Multifamily Investment Sales
Franklin Street Real Estate Services
404.832.1250 x 0441