Supply-and-demand balances that are in generally great shape, plenty of different types of ready, willing and able buyers, and Atlanta continuing to be, well, Atlanta, combine to continue fueling commercial real estate investment activity.
The metro area’s location, sound economic fundamentals, and job growth puts Atlanta commercial real estate at the top of the lists for a lot of different players, according to Joe Pella, group vice president and Georgia market manager at SunTrust Bank.
“They run the gamut from institutional to local buyers,” Pella said. Many institutional investors, whose ranks include insurance companies, REITs, pension funds, and other large entities, have been increasing their exposure to commercial real estate in the past few years, according to Pella. He adds that there has also been a recent step-up in activity among foreign entities such as sovereign wealth funds, “who view investing in U.S. real estate assets as a safe haven.”
Local entrepreneurial buyers are also a factor in the investment marketplace, particularly in multifamily, where they are particularly well-suited to take on value-add opportunities.
“Local players typically understand specific markets better than the national or international players,” Pella said, which is especially important when it comes to what he calls “repositioning opportunities, where the buyer goes in to renovate and reprice a property.”
Overall, multifamily is the product type that is the largest driver of investment sales in the metro area, according to Pella. Why? “Multifamily has historically performed better during downturns than other asset types,” Pella said. Increasing numbers of millennials opting out of homeownership for multifamily living is another driver these days, he notes; plus, with agency lenders Fannie Mae and Freddie Mac, “multifamily has financing sources that are not available to the office, retail and industrial sectors.”
This year, “We’re seeing a very active multifamily market, especially inside the Perimeter,” said John Leonard, regional managing partner at Franklin Street.
“Both locals and outside capital are active, and prices continue to rise,” Leonard said. The repositioning/value-add sector of this market is doing especially well, he notes, adding that buyers “are especially receptive to any property that features walkability to MARTA.”
Statistics from CBRE Inc. indicate that some $6.8 billion in Atlanta-area multifamily properties changed hands in 2015. Through the end of third quarter 2016, sales volume for the year totaled nearly $5.6 billion.
“Better than ever”
Also according to CBRE, more than $5.1 billion in office investment deals (in buildings 50,000 square feet and larger) closed in 2015, not quite doubling 2014’s sales volume.
And projections are that Atlanta office investment-deal volume will total around $4 billion when the books are closed on 2016, according to CBRE Executive Vice President Justin Parsonnet.
Major institutional buyers, including REITs and pension funds, have been busy shedding suburban office properties and replacing them with buildings in Atlanta’s downtown/Midtown/Buckhead core, he notes. Building buys in the ‘burbs are being done primarily by private equity funds and other private capital sources.
Office-investment-wise, “There is an increasing amount of capital focused on Atlanta,” said Parsonnet. “Our star is pretty high among investors, thanks in large part to the strong fundamentals we are seeing in the market.”
Parsonnet said much of the recent activity in the market has been in the form of value-add buys, i.e., underperforming, typically older properties that promise to provide increased returns following needed improvements and/or repositioning…
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