Although skyrocketing interest rates have driven a slowdown in apartment sales volume over the last couple of months, some companies remain active buyers and sellers in the market. Count Blackfin among that group.
In August, The Arlington, Va.,-based apartment owner sold Pressley South End Apartments, a 504-unit property in Charlotte, North Carolina, for $78 million after buying the property for $19 million in 2017. Then, in October, it sold the 503-unit The Avenue apartments in Greensboro, North Carolina, for $67 million, almost five years after buying the asset for $28.1 million in 2018.
Overall, Blackfin has sold four assets in 2022 while making an $886 million portfolio acquisition of 3,564 apartments across the Sun Belt.
Blackfin’s activity shows that debt and equity will still line up for compelling transactions.
“For the right deals, there’s an abundance of capital,” Blackfin co-founder and managing partner Doug Root told Multifamily Dive. “But I think everyone is probably a little more cautious just knowing there's a lot of uncertainty in the market.”
Here, Root talks with Multifamily Dive about rent growth, the Federal Reserve’s rate hikes and the apartment renovation business.
This interview has been edited for brevity and clarity.
MULTIFAMILY DIVE: How are your properties performing?
DOUG ROOT: We're still seeing great asset performance. While there has been some moderation in rent growth, we are still seeing rent growth that is outstanding from a historical perspective.
What product types are you zeroing in on in the acquisition market?
We continue to canvass the East Coast — higher-barrier-to-entry markets. In a perfect world, we're trying to find a discount off of peak pricing. What that could be is still to be determined.
It will be decided asset by asset, depending on the rent-growth trajectory for each investment. We’re looking to find a discount to replacement costs if it's out there. Some of these older assets had been trading at replacement costs. So, we’re trying to find some disconnect between where new construction is pricing today.
What needs to happen to stabilize the market?
Right now, the message is clear — [rate hikes] will continue for some time. Maybe that's enough certainty to make decisions. I think everyone’s initial take was that there would be a few months of rate increases and then stability. It will probably drag out a little longer than anticipated.
At some point in time, this will run its course. When it does, I think it will be easier for the market as a whole to invest.
How have the rate hikes affected your construction and renovation business?
Our business is a little bit of a lagging indicator, but it's probably too early to tell because there have only been a few months since the market volume has slowed down. But the assets are performing well. Owners stop renovations when the assets aren't performing well and there's a slowdown in growth. People feel comfortable investing capital in their properties when they know that renters are willing to pay for it. The economy, as a whole, is healthy, and the market continues to support rent growth.
We could see a slowdown when there is a hiccup in asset performance. Then people decide not to spend their money on the next renovation project or the next big, deferred maintenance project. They may need those dollars to keep the asset.
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