Opportunities Grow in Second-Tier Markets

Investors are heading to secondary markets, like Phoenix and Las Vegas, for multifamily investment opportunities, which are showing stronger rent growth. TruAmerica Multifamily, in a joint venture with Oaktree Capital Management, has purchased two multifamily properties in Las Vegas and Phoenix for a total of $142 million. The two properties include Galleria Palms, a 424-unit multifamily property in Tempe, which the firm acquired for $75.1 million, and Aviata, a 456-unit multifamily property in Henderson/Paradise Valley, which the firm purchased for $67 million.

“We focus on the class-B, rent-by-necessity demographic. We look for opportunities with assets that need fresh capital and fresh management, and that have a dated appeal to reinvest in the properties and make them more competitive. Both of these properties really fit that profile,” Noah Hochman, senior managing director of capital markets for TruAmerica Multifamily, tells GlobeSt.com about the purchases. “Both properties are great buys for us, and they both provide the opportunity to renovate the interiors.”

TruAmerica has been expanding its footprint in these markets. With these two purchases, the firm now has 2,000 units in Phoenix and 3,251 units in Las Vegas. The firm’s interest in the market is growing as opportunities in Southern California and other coastal markets have waned. “We are in a mature part of the cycle, and in markets like Southern California and Seattle, there are not a lot of opportunities,” explains Hochman. “Both Phoenix and Las Vegas are experiencing strong rental growth and above-average rental growth nationwide. Both markets are very business friendly, and as the local economies have recovered, they have attracted a lot of companies and jobs. As a result, they have drawn a lot of new residents that are moving to these states.”

Hochman adds that institutional players have also become much more active in these markets, especially as they have seen strong rental rate growth and increased demand. “There is more institutional money that is going into these markets,” he says. “The big names, like Blackstone and GreyStar, wouldn’t look at these markets in the past, and I think that as the local economies in those markets have become more diverse than in previous cycles, they feel more comfortable that they have become institutional-quality investment markets. So, you have seen a lot of those players move into the market. If you see the institutional names that are buying there, I think that validates the investment thesis of these being high-quality markets to invest in today.”

The firm’s activity in these markets doesn’t meant that they are no longer looking in the coastal areas, like Southern California and Phoenix, but rather that they are being more selective. “We are buying in those markets, but it is much harder to find opportunities,” says Hochman. “Those markets are also not getting the same type of growth, and so we are focusing on markets that were late out of the recession and where we are seeing more growth.”