Investors are increasingly drawn to secondary and tertiary suburbs due to overheating in core markets and residents' desire for more affordable living, notes Parkview Capital's Paul Rahimian.
by Paul Rahimian
After a long, successful run of investment and development in multifamily properties in core markets nationwide, we are seeing investors’ and developers’ interest shift to multifamily opportunities in secondary and tertiary markets.
Demand for housing in non-core locations has been growing, as people look to migrate out of urban CBDs to more affordable, generally more livable neighborhoods in suburban cities near the job centers. A further advantage of investing and developing in secondary and tertiary markets is that these areas tend to be more recession-proof. In an economic downturn or an uncertain business climate, the already more affordable, rents are less likely to drastically decline. On the other end of the spectrum, core, high-end apartments which are garnering top-of-the-market rents will see higher vacancy rates as people seek to move to less expensive locations.
LOWER VACANCIES, GREATER STABILITY
Parkview Financial has been working with developers and analyzing gentrifying local secondary/tertiary markets where we are financing their projects. While rents are lower than prime markets, they offer more long-term stability especially now when many experts see an economic slowdown on the horizon. Below are two recent projects we have financed that are great examples of this growing trend and demonstrate the importance of understanding the demographic needs of the local market.
In Elizabeth, N.J., for example, where the apartment vacancy rate is around 2 percent, Parkview provided a $56 million construction loan for the development of Phase I of Jersey Walk, a 5.41-acre, 218,292-square-foot, Class A luxury apartment community. And, in Meridian, Idaho, a suburb of Boise, where the 2019 multifamily vacancy rate was under 4 percent, Parkview provided a $27.7 million loan to finance the construction of Summertown Apartments, a 190-unit garden-style luxury apartment project.
Over the coming years, as opportunities in core markets run their course, I believe we will see a rise in multifamily projects in suburban areas as the demand for lower cost alternatives outside of city cores increases.
Paul Rahimian is CEO of Parkview Financial, a private construction lender based in Los Angeles, Calif.