The recent $2.7 billion purchase of approximately 30,000 apartments across the Dallas, Atlanta and other southern markets by private equity giant Blackstone has some multifamily sector observers scratching their heads.
At first glance the sell side makes the most sense: GE Capital appears to have corporate cultural issues with real estate. But more interestingly, while multifamily dwelling demand remains solid nationally, the idea that apartments in many metro areas are underperforming or offer a ton of upside in other ways just does not appear to be the most popular view at the moment. Owing perhaps to a national follow-on effect of the housing crisis, multifamily nationally has a lot of boom in its recent history and perhaps not as much in its future. The debt that has converted single-family homeowners into renters may have done most of its work already, says the conventional wisdom. Apartment construction is up and declining vacancies have stalled out to post-crisis lows.
The great Llenrock blog had an interesting take on Blackstone’s head-scratching strategy. With a shrug, Eric Hawthorne suggests stability or general energy-boom chasing as possible aims of the deal, noticing that Blacktone’s recent history in single-family might make their play more about market and less about asset class:
After years of high demand and value creation, the multifamily sector appears to have reached something of a plateau, which will no doubt continue as more and more apartment buildings open and fill. Multifamily development has outpaced the rest of the CRE world since the recession, and the market will soon have to catch up with all the new inventory.
It could be this deal is simply a bid for stability. Whether they gain value or not, no one can deny multifamily communities offer their landlords stability. More likely, I think, Blackstone’s sudden shift from single-family to multifamily is less about the asset class than the market. According to RTTNews, the 30,000 apartments (give or take) Blackstone acquired are in Atlanta, Dallas, and other parts of the Southeast and Texas. Dallas, of course, enjoys a great deal of activity from the energy sector and is a major growth market. Atlanta, on the other hand, has lagged behind many other cities in the economic recovery, so its values are yet to reach the levels of other comparable markets. All of this is to say that multifamily may indeed have some value-add opportunities left–in certain cities, anyway.
Further suggesting Blackstone’s idea is about future rent raises in a rising market is Marcus & Millichap’s recent report on the Dallas / Fort Worth Metroplex, celebrating the new inventory pipeline and low vacancies with unrestrained enthusiasm.
Time will tell, but it looks to me like Blackstone’s DFW bet is on the location more than anything else.