Why this L.A. Investor Is Looking Northwest

LOS ANGELES—Trion Properties is actively acquiring value-add multifamily properties in the Pacific Northwest market, with a specific focus on Portland. The value-add investor has historically focused on Southern California markets, as well as the Bay area, but is expanding its geographic reach because of the wealth of opportunities in the Pacific Northwest market. The firm has already purchased four properties in the Portland area with a total of 215 units, including its most recent acquisition of Hidden Villas, a 61-unit, value-add apartment community in the Portland submarket of Beaverton. To find out why the firm is so bullish on this market, about its investment strategy and what competition is like—since we have seen a lot of investors head north—we sat down with Max Sharkansky, managing partner at Trion Properties, for an exclusive interview.

GlobeSt.com: Why is your firm targeting the Pacific Northwest?

Max Sharkansky: The Pacific Northwest, specifically the Portland metro, remains attractive to us for a number of reasons. Portland's tremendous job growth, mass transit options, and high quality of life are driving resident demand for multifamily in this market, making this a promising target for multifamily investors. These demand drivers create a strong opportunity for us to capitalize on the growth of this region by investing in centrally located housing near major employers.

Portland has recently emerged as one of the fastest growing markets in the nation, with a number of sports apparel companies and tech employers taking up residence here. Nike's World Headquarters, for example, is planning a 3.2 million square-foot expansion in the Beaverton campus area, adding hundreds of new jobs in the next few years, while Under Armour is also expanding its Portland headquarters in this region, solidifying Portland's reputation as the sports apparel capital of the nation.

The Pacific Northwest bears a number of similarities with primary markets such as the Bay Area and Los Angeles. Known as the “Silicon Forest,” the Portland MSA features a growing presence of large tech employers, including Yahoo!, Tektronix, and Intel, among others, with an economic profile similar to the tech-centric Bay Area. As one of the most dynamic tech employment markets in the Pacific Northwest, the region is extremely well positioned for long-term growth, making this a desirable market for multifamily investors.

GlobeSt.com: Tell me about your strategy and the types of opportunities that you are targeting.

Sharkansky: Our investment strategy is to acquire and reposition value-add multifamily assets in strong, gentrifying markets along the west coast, including Portland, the Bay Area, Los Angeles and San Diego. We target assets that present an enormous opportunity to drive value through strategic renovations and our integrated property management platform. In doing so, we are able to deliver high-quality housing that serves as a more affordable alternative to newer construction in these areas.

As value-add investors, we strategically source multifamily opportunities well-below replacement cost with tremendous upside potential, allowing us to bring rents up to market through a series of capital improvements in order to increase net operating income.

Our acquisition of Hidden Villas in the Beaverton submarket of Portland is well aligned with this value-add investment strategy. With rents approximately 12% to 36% below market value, Hidden Villas presents an opportunity for us to capture rent growth upon lease rollover, enabling us to generate strong risk-adjusted returns for our investors.

We recently acquired a similar multifamily property earlier this year, Tigardville Apartments, a distressed, 36-unit garden-style asset located in the Tigard submarket of the Portland metro. Through extensive renovations and cosmetic upgrades, we plan to bring rents up to market and deliver attractive yields within a short-term hold period.

Both of these assets demonstrate our strategy of acquiring unoptimized assets located in supply-constrained markets with strong fundamentals and economic growth.

GlobeSt.com: Which PNW submarkets are you most active in, and why?

Sharkansky: We are bullish on the Portland MSA. Our acquisition of Hidden Villas brings our total Portland multifamily portfolio to 215 units, enabling us to amass economies of scale in this market.

Beaverton's demand drivers and market fundamentals make this a strong target for our multifamily portfolio. This submarket boasts a history of tremendous rent growth, exceeding a 10% increase just last year. The region also demonstrates sub-4% vacancy rates, which indicate strong demand for multifamily.

In addition to the growing presence of sports apparel and tech employers in the Beaverton submarket, the region also features a number of mass transit options linking the entire Portland metro together. These include a number of light rail stations and transit corridors such as the U.S. Highway 26 and Oregon Route 10 for daily commuters.

Demand for multifamily in this market remains strong, and is projected to increase based on the enormous economic growth throughout the region. Based on these fundamentals, we continue to target Portland for future multifamily investments.

GlobeSt.com: There has been increasing investor interest in this market. Are you seeing a lot of competition for opportunities?

Sharkansky: Investor interest is definitely heating up in Portland. As employment gains in this market continue to fuel year-over-year rental increases, multifamily investors are flocking to this region to capitalize on the market's growth and leverage resident demand for quality housing.

That said, as one of the first investors to recognize the potential in this market, we bring a competitive advantage to our investments in this region. Many investors have set their sights on Seattle, and have only recently begun to shift their focus to Portland, which is quickly following suit as one of the fastest growing markets in the Pacific Northwest.

The limited supply of multifamily product, coupled with strong pent-up demand and favorable renter demographics, will further drive rental rates in the Portland metro, attracting investors to this region in search of investment opportunities.

GlobeSt.com: What kinds of yields and pricing are you getting in the PNW compared to other West Coast markets?

Sharkansky: Cap rates in the Pacific Northwest are averaging 5% to 6% compared to those in other primary coastal markets such as Los Angeles, which averages sub-4%. This creates an opportunity for investors to achieve higher yields by selling multifamily assets at a premium in markets such as Portland. Our going-in cap rate for our Hidden Villas acquisition was approximately 5%.

LOS ANGELES—Trion Properties is actively acquiring value-add multifamily properties in the Pacific Northwest market, with a specific focus on Portland. The value-add investor has historically focused on Southern California markets, as well as the Bay area, but is expanding its geographic reach because of the wealth of opportunities in the Pacific Northwest market. The firm has already purchased four properties in the Portland area with a total of 215 units, including its most recent acquisition of Hidden Villas, a 61-unit, value-add apartment community in the Portland submarket of Beaverton. To find out why the firm is so bullish on this market, about its investment strategy and what competition is like—since we have seen a lot of investors head north—we sat down with Max Sharkansky, managing partner at Trion Properties, for an exclusive interview.

GlobeSt.com: Why is your firm targeting the Pacific Northwest?

Max Sharkansky: The Pacific Northwest, specifically the Portland metro, remains attractive to us for a number of reasons. Portland's tremendous job growth, mass transit options, and high quality of life are driving resident demand for multifamily in this market, making this a promising target for multifamily investors. These demand drivers create a strong opportunity for us to capitalize on the growth of this region by investing in centrally located housing near major employers.

Portland has recently emerged as one of the fastest growing markets in the nation, with a number of sports apparel companies and tech employers taking up residence here. Nike's World Headquarters, for example, is planning a 3.2 million square-foot expansion in the Beaverton campus area, adding hundreds of new jobs in the next few years, while Under Armour is also expanding its Portland headquarters in this region, solidifying Portland's reputation as the sports apparel capital of the nation.

The Pacific Northwest bears a number of similarities with primary markets such as the Bay Area and Los Angeles. Known as the “Silicon Forest,” the Portland MSA features a growing presence of large tech employers, including Yahoo!, Tektronix, and Intel, among others, with an economic profile similar to the tech-centric Bay Area. As one of the most dynamic tech employment markets in the Pacific Northwest, the region is extremely well positioned for long-term growth, making this a desirable market for multifamily investors.

GlobeSt.com: Tell me about your strategy and the types of opportunities that you are targeting.

Sharkansky: Our investment strategy is to acquire and reposition value-add multifamily assets in strong, gentrifying markets along the west coast, including Portland, the Bay Area, Los Angeles and San Diego. We target assets that present an enormous opportunity to drive value through strategic renovations and our integrated property management platform. In doing so, we are able to deliver high-quality housing that serves as a more affordable alternative to newer construction in these areas.

As value-add investors, we strategically source multifamily opportunities well-below replacement cost with tremendous upside potential, allowing us to bring rents up to market through a series of capital improvements in order to increase net operating income.

Our acquisition of Hidden Villas in the Beaverton submarket of Portland is well aligned with this value-add investment strategy. With rents approximately 12% to 36% below market value, Hidden Villas presents an opportunity for us to capture rent growth upon lease rollover, enabling us to generate strong risk-adjusted returns for our investors.

We recently acquired a similar multifamily property earlier this year, Tigardville Apartments, a distressed, 36-unit garden-style asset located in the Tigard submarket of the Portland metro. Through extensive renovations and cosmetic upgrades, we plan to bring rents up to market and deliver attractive yields within a short-term hold period.

Both of these assets demonstrate our strategy of acquiring unoptimized assets located in supply-constrained markets with strong fundamentals and economic growth.

GlobeSt.com: Which PNW submarkets are you most active in, and why?

Sharkansky: We are bullish on the Portland MSA. Our acquisition of Hidden Villas brings our total Portland multifamily portfolio to 215 units, enabling us to amass economies of scale in this market.

Beaverton's demand drivers and market fundamentals make this a strong target for our multifamily portfolio. This submarket boasts a history of tremendous rent growth, exceeding a 10% increase just last year. The region also demonstrates sub-4% vacancy rates, which indicate strong demand for multifamily.

In addition to the growing presence of sports apparel and tech employers in the Beaverton submarket, the region also features a number of mass transit options linking the entire Portland metro together. These include a number of light rail stations and transit corridors such as the U.S. Highway 26 and Oregon Route 10 for daily commuters.

Demand for multifamily in this market remains strong, and is projected to increase based on the enormous economic growth throughout the region. Based on these fundamentals, we continue to target Portland for future multifamily investments.

GlobeSt.com: There has been increasing investor interest in this market. Are you seeing a lot of competition for opportunities?

Sharkansky: Investor interest is definitely heating up in Portland. As employment gains in this market continue to fuel year-over-year rental increases, multifamily investors are flocking to this region to capitalize on the market's growth and leverage resident demand for quality housing.

That said, as one of the first investors to recognize the potential in this market, we bring a competitive advantage to our investments in this region. Many investors have set their sights on Seattle, and have only recently begun to shift their focus to Portland, which is quickly following suit as one of the fastest growing markets in the Pacific Northwest.

The limited supply of multifamily product, coupled with strong pent-up demand and favorable renter demographics, will further drive rental rates in the Portland metro, attracting investors to this region in search of investment opportunities.

GlobeSt.com: What kinds of yields and pricing are you getting in the PNW compared to other West Coast markets?

Sharkansky: Cap rates in the Pacific Northwest are averaging 5% to 6% compared to those in other primary coastal markets such as Los Angeles, which averages sub-4%. This creates an opportunity for investors to achieve higher yields by selling multifamily assets at a premium in markets such as Portland. Our going-in cap rate for our Hidden Villas acquisition was approximately 5%.