April 2024 Insights: Economic Strength Continues to Surprise
Market update
Interest rates are again in the spotlight with the 10-year treasury increasing from 3.9% at the beginning of the year to surpassing 4.7% on April 24th and the acceptance that the federal reserve will likely maintain higher short term interest rates for longer. As a result, we are beginning to see the last glimmer of hope from overleveraged, post-pandemic investors fade and foreclosures increase. While the only surprise was how long this process has taken, a few notable operators have either handed back the keys on properties or surprised investors with a capital call this month.
While intimidating at first, this process is healthy and provides the same gentle reminder that we receive every 10 or so years that leverage as well as short duration debt does not come without risks. Akin to 2010 which led to one of the greatest investment cycles in multifamily history, the repricing of today’s market is setting the stage for the next 10 years. The fundamentals that we’ve discussed in previous newsletters (cost of renting vs. owning, construction supply, etc.) remain as strong as ever and provide a clear path to continued growth.
Economic Strength Leading to a Rebound in Rent Growth
Following a robust addition of over 637,000 jobs in 4th quarter 2023, the U.S. economy maintained its momentum by adding more than 500,000 jobs (seasonally adjusted) in the initial two months of 2024, showcasing the labor market’s continued strength. Labor market strength is causing forecasters such as RealPage to increase their projections.
“Our most recent projections for annual effective rent change in calendar 2024 suggest that within the nation’s 50 largest apartment markets, 12% are expected to witness rent increases of 3% or higher. The bulk of major markets are forecasted to experience growth between 2% and 2.9%. Meanwhile, 38% or markets are predicted to see rent growth ranging from 1% to 1.9%. The smallest portion of markets, 8%, will likely encounter growth below 1%. These forecasts are based on the latest economic indicators and their expected performance in the near term.” – Arven Skivjani of RealPage
Blackstone’s $10 Billion Bet on Multifamily
The real estate investment world took notice as Blackstone injected a hefty $10 billion into a collection of upscale rental communities, signaling a strong belief in the multifamily sector’s potential for growth and value. This strategic investment in Apartment Income REIT, now known as AIR Communities, along with an additional $400 million earmarked for property enhancements, underscores a calculated approach that acknowledges both the risks and rewards amidst today’s economic dynamics.
The market is showing us a complex picture: while some investment managers are stepping back, having to focus perhaps on struggling portfolios, a large amount of capital is confident in the secular tailwinds supporting the asset class and believes the worst is behind the industry. At Vanamor, we too believe that we are closer to a bottom than we are a top and while the next 12 months will be bumpy, fantastic opportunities will emerge. Unlike Blackstone, which given its size is a broad bet on the multifamily market, our focus is on the outliers where we’re able to meticulously add above-market value and returns.
Investment Update – Vanamor Reedville Meadows
Vanamor’s most recent acquisition, Reedville Meadows Apartments, was completed in December of 2023. In just three months, the team has renovated 25% of unit interiors while ending the quarter at 100% occupancy.
What We Do
We are strategic real estate investors.
At Vanamor, we combine an institutional approach with an often overlooked middle-market focus to employ a flexible and disciplined investment philosophy. Our goal is to provide stable cashflow with above-market total returns. Since inception, Vanamor has averaged a greater than 33% annual return with an average of 8% annual cashflow distribution.
