This is Jonathan Aceves with Meybohm Commercial Real Estate, advising business leaders and helping them make wise real estate decisions. Today we’re going to be discussing Multifamily Rent Curves.
How does one set out to study multifamily rental rates? We do this by building a rent curve. Let’s say you want to study the rental rates for housing in Martinez, GA. We would do a survey of rental rates at apartment complexes in the area, and plot them on a graph. The graph would start out looking like this:
Then we would separate them by class. Class is a ranking system given to multifamily properties by investors, generally A, B, C, and D. A properties are generally newer, amenitized, and really nice. B properties are usually good, but maybe a little older, maybe not the same level of amenities. C properties are in not-so-great areas, in fair condition, usually schools aren’t so good. D properties are in bad condition and really rough areas, these are the kind that you wouldn’t go to at night. Once you’ve broken them apart by class, you draw a curve over them. You would end up with something like this:
It is interesting to note the steepness of the curve, and the distance between the different curves. Another thing to note is that market changes shift the curves. This is what we see in rapidly gentrifying areas—the entire curve moves out.
So how do you use the rent curve? Well this helps investors identify opportunities for repositioning. It also helps you identify management problems. If I see a complex with below-market rents, I try to figure out why. Is it a problem that an investor can fix?
Thanks for reading! Please like and share with those you think might benefit from this. We’d love to hear from you! What are your thoughts about rental rates?
The primary Class A Complex in our study was Nine Two Six West, at 926 Stevens Creek Road. Nine Two Six averaged $1.26/foot/month asking rent. Rocky Creek and Iron Horse we considered Class B, which averaged at .84 cents. Fountainhead we considered Class C, and averaged $.69.
Takeaways: It does make a difference who the management company is, where it is advertised, and having good photos and floor plans.
If you are a multifamily investor with north of 20 units, you should sit down with the guys at Doorpost Management. They can give you the same economy of scale as the as the 200+ unit complexes with their integrated maintenance. Also the quality of their financial reporting is critical for owners that may be considering sales in the next few years. It’s hard to get a professional investor to take a serious look at your property when your manager can’t provide clean financials and rent rolls.
Southeastern Development received a recommendation for approval on zoning revision to modify the shape of the site on Blackstone Camp Road. The property is near the upscale River Island Subdivision in Columbia County. The project would be limited to 274 units, and would follow the River Island PUD narrative design standards. Southeastern Development has already started the site work. The project was technically approved in 2002. It recently has received a lot of criticism from neighbors, including a petition for the Columbia County Commission to reconsider.
I think this is a good project and will ultimately be good for this community. I think it’s important to have a healthy mix of housing, and new Class-A apartments force older complexes to lower their prices, and create a cycle which helps create a diverse offering of housing products. Also, A-Class housing becomes B-Class housing, B-Class housing becomes C-Class, and so forth.
It seems that lower-income neighborhoods that don’t want to see change and diversification fight against gentrification, while higher-income neighborhoods that don’t want to see change fight against “higher crime rates” and “overcrowding of schools”.