Patrick is Founder and CEO of CARROLL, a national real estate firm combining institutional investment capacity with real estate operations.
The onset of the global pandemic brought uncertainty to a lot of industries, with real estate as a whole being no exception. The multifamily sector, however, has continued to weather the storm relatively well, especially in suburban communities. We have seen this to be the case firsthand with our portfolio: Our rent payments and resident occupancy rates have held steady despite the upheaval of 2020.
Not every market has been able to cope with the pandemic’s effects as successfully, as we have seen with areas like Manhattan or markets that rely heavily on tourism dollars. Yet, even those areas are starting to make a comeback, which is fueling renewed optimism in a post-pandemic economy.
For real estate firms, the changes brought about by the pandemic, coupled with the rebounding economy, have helped teams justify interest in secondary and tertiary markets. With a solid presence primarily focused in the Sunbelt region, our firm is capitalizing on that interest and expanding further west to set up a presence in Las Vegas.
What makes this the right time for such a move and what should other multifamily companies consider when it comes to such an expansion? There are several factors that should be considered:
Plan ahead and bring in the right people.
Effective real estate investing is a calculated strategy. Companies can spend months or even years watching for the right properties and the right set of circumstances to make a move. We even made intentional hires to bring in industry veterans with in-depth knowledge and investment experience in West Coast markets to help guide the strategy.
Even with diligent research and trend watching, expanding into new markets isn’t always easy — there are going to be unknowns. Making sure you develop a team and process around your future goals is key to successful expansion. Building a knowledge base provides insight into how the market will act under normal circumstances and allows teams to prepare for the unknowns in navigating abrupt changes like a post-pandemic landscape.
Choose a market you understand.
An area like Las Vegas is perfect for us because it shares characteristics with markets we’re already successfully working in. For example, we know that business-friendly, tax-favorable cities will always attract companies and workforces. But, taking your analysis a step further to understand why people move to these communities and what they’re looking for can give you a head start when evaluating new regions. Demographic familiarity is a strong indicator of asset success based on resident understanding and knowing how to create positive experiences that resonate in the market.
And while it might be tempting to chase low prices in traditional “big city” markets, without experience, the unknown factors could make it more difficult to navigate. I’m not saying to shy away from those gateway markets, but it’s important to look for opportunities that play to the strengths of your company’s strategy.
Don’t be afraid of the data.
The notion of expansion and entering new markets is always an exciting opportunity, but be sure to carefully review the data before making any decisions. Data will play a significant role in understanding what market and investment opportunities offer the most promise for long-term returns.
Regardless of the market or transaction, we rely on a data-forward approach for each of our investments. By overlaying first-party portfolio data with credible third-party analytics, investors are able to better identify market opportunities that create the most promise for large returns, especially in a competitive market.
Wait for the right moment.
With all of your preparation and research in place, choosing the right time to execute an expansion can make all the difference.
Las Vegas and similar markets were hit hard by the pandemic as tourism came to an abrupt halt. Yet, the multifamily sector saw a steady balance as the housing market soared because Americans needed security during the pandemic. And with record-high home prices, multifamily housing assets will continue to be in steady demand.
According to the CBRE, the demand for multifamily housing is expected to increase in the rebound from Covid-19 as people look for new housing and regain the financial flexibility to live alone. Entering 2022, industry growth is expected across the board, but every region will recover differently, which is why market entry will weigh heavily on timing.
As the world continues to recover from the pandemic and the housing market fluctuates, multifamily housing remains an attractive asset for investors and renters alike.
Be diligent on the deals you are evaluating and underwriting. Identify and focus on the long-term goals and don’t sacrifice the longevity of your portfolio by going after short-term gains, especially in over-extended markets. For every real estate investor, there will be prime opportunities to enter new markets and expand their portfolios. Be patient and use the time it takes to enter a market and invest in the resources that will allow you to excel when the time is right.