Mike Campbell, associate vice president of acquisitions for Northland Investment Corporation, says Lake Tahoe is his favorite vacation destination.

Ski trips to Tahoe with some longtime Bay Area buddies are part of the reason the Boston-based executive was familiar with Reno.

“Tahoe is my favorite place to go on vacation, hands-down,” Campbell said in a recent NNBW interview. “I have spent time around Reno, and it’s a dynamic city with a lot of good things going for it.”

After several misses, Northland Investment Corporation, which owns and operates a nationwide portfolio of more than 26,000 multifamily apartment units, closed a deal in February to acquire the 330-unit Lumina at Spanish Springs property on Rolling Meadows Drive.

According to Washoe County Assessor records, Northland acquired the property, which finished construction in 2019, from Sunroad Enterprises for $100 million.

Lumina is the company’s first investment in the Northern Nevada multifamily market, but it likely won’t be its last, Campbell said.

“When we started looking at cities, (we look at) basic metrics like affordability, lifestyle and job opportunities — inward job migration is always huge — and Reno checks those boxes,” Campbell said. “Reno has been on our radar for a few years. We swung and missed on a couple of deals, but we were able to plant our flag with Lumina.

“Ideally, this is our anchor,” he added. “We will use this (purchase) to hopefully find some more opportunities to grow the portfolio and continue to expand our operations (in Reno-Sparks). Strategically, we are first and foremost an owner/operator, so with our long-term investment horizon, we typically try to find economies of scale by building a larger footprint.”

Resources aside, it could prove difficult for Northland to deploy additional capital in Northern Nevada. The company joins a crowded playing field with dozens of other private and institutional investors seeking to deploy investment capital in multifamily properties in Greater Reno-Sparks, two longtime regional investment brokers say.

Solid multifamily market fundamentals — high and stable occupancy and regular rental appreciation — have created fierce competition for investment opportunities, said Ted Stoever II, executive vice president of investments with Kidder Mathews in Reno.

According to Kidder Mathews’ first-quarter multifamily market report, average rents across all property types and sizes rose 3.16% to $1,424 per unit, with overall market vacancy dipping just south of 2%. The numerous large Class A apartment projects coming online on seemingly every formerly vacant lot in the region are leasing almost as fast as units are completed, Stoever said.

“We dropped almost an entire point on vacancy despite delivering units as fast as we can,” he said. “All these new high-end properties are stabilizing very quickly. As for investments, there are billions of dollars that need to be deployed out of California and into Nevada for tax reasons. The trick is finding the inventory to meet that demand.”

Billions of dollars of institutional investment money, low interest rates and unparalleled demand to deploy capital out of California and into Nevada has created a perfect storm for owners of multifamily apartment complexes.

Ben Nelson, first vice president of investments with Kidder Mathews, said numerous potential investors are 1031 exchange buyers — investors who sold multifamily properties elsewhere and need to invest sale proceeds into “like-kind” assets in order to avoid paying stiff capital gains taxes to the IRS.

Reno-Sparks, with its rapid growth, incredibly low multifamily vacancy rates and steep rental rates, is on many institutional and 1031 exchange buyers’ radar. Northland’s Campbell says his firm has noticed quite a few new faces in early bidding rounds.

The competition for investment properties is so aggressive that investors and brokers alike are relying on their networks of connections to make offers on properties before they are marketed. Finding deals that make sense for Northland has been challenging, Campbell admitted.

“Competition is very fierce and active,” he said. “There is a lot of capital flooding into the multifamily space. For us, it is about fostering good relationships and finding parties we have transacted with in the past or look forward to transacting with in the future to find ways to get deals done together.

“Those sorts of relationships are really driving some of our larger target sales.”

Stoever said 99% of the time, large multifamily property sales are off-market investment opportunities.

“Any investment broker worth their druthers has a Rolodex of institutional and syndicated investors who are ready, willing and able to jump in immediately with very short due diligence timeframes and have the cash to close,” he said. “It is motivating Ben and I to be creative and talk to developers and owners of newer projects to show them where the value is today and be creative on deploying their gains.

“We are working with existing owners and new developers and showing them where the market is right now — which is incredible — and showing them the upside of selling in a market this hot.”

Nelson said competition for investment opportunities is equally brisk with smaller multifamily complexes of 10 to 100 units. Potential investors often want to dip their toes in the investment pool by buying value-add opportunities — slightly older complexes that could benefit from a change of management or some modest renovations to reposition the assets.

Northland’s Campbell said that although his company prefers newer Class A properties — which make up about 85% of the company’s portfolio — it also considers assets that could benefit from strong management and renovation capital.

“We are looking for ‘cleaner’ assets for the most part, but we can pivot when needed to find something that maybe has had an absentee owner and maintenance has fallen by the wayside,” he said. “We are flexible enough to jump in and overcome those issues to make the residence base happy and bring more life to the property.”

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While investors overall continue to find the Gulf Coast multifamily rental market attractive — for a third consecutive year — several companies are taking a “more is better” approach.

Northland Investment Corp., Federal Capital Partners and Radco Cos., among others, each have acquired at least a half dozen apartment properties in Tampa and elsewhere over the past three years.

Each maintains owning multiple complexes within a submarket allows for greater knowledge of market nuances, operating efficiencies, greater leverage with vendors and the ability to capture higher caliber employees.

Tampa, in particular, also is considered attractive because of its pro-business governments, job and population growth and infrastructure and other improvements.

“You can definitely obtain a better negotiating position with contractors and vendors by owning multiple properties in any given market,” says Matthew Gottesdiener, Boston-based Northland’s chief investment officer.

“But perhaps more importantly, owning several properties allows you to develop a more keen understanding of a local market.”

In October, Northland spent $112 million to buy the 35-story Element apartment tower in downtown Tampa, its fifth acquisition in the region in as many months.

The company, which in all owns 32 properties containing more than 9,000 units statewide, followed that 395-unit purchase up by buying the 360-unit Echo Lake community in Lakewood Ranch for $76.1 million, records show.

“There are a lot of good reasons to own multiple properties, as we do in the Tampa area,” says Norman Radow, founder and CEO of Radco Cos. “First of all, when you’re in the value-add business, as we are, you can’t just buy a property, send a construction crew down to fix it and be done.

“Care requires people, on-site,” he adds. “And that requires local relationships. And you can just do things more efficiently and get better pricing on materials and alike spread over a wider platform.”

Radow describes Tampa, where the company owns roughly 2,000 apartments, as a “model of success” for its job and population growth and commitment to infrastructure improvements in the wake of last decade’s recession.

He agrees with Gottesdiener that owning more than one complex can provide intimate market knowledge that a single holding cannot.

“If you have five properties in a market and you have problems with one, you can better determine what the issues are,” Radow says.

In June, Radco paid $41.7 million for the 536-unit Cordova Apartment Homes in Tampa, its sixth purchase in the city. The Atlanta-based company, as part of a $7.7 million rehabilitation, rebranded the community Sunstone Palms.

Part of the decision to cluster properties may also stem from a corporate strategy to focus on a limited number of markets nationwide.

That’s what drew Federal Capital Partners (FCP), a Chevy Chase, Md.-based firm, to Tampa.

FCP has acquired four area rental properties and financed two others over the past 18 months — including the 326-unit Belara Lakes and the 200-unit The Commons, both in Tampa, which were purchased for a combined $46.4 million.

“Those deals speak to our view of the Tampa market,” says Jason Ward, a FCP vice president. “We’re only focused on 10 markets nationwide, and Tampa is one of them. It’s one of the markets where there’s an older housing market and it’s a fast-growing job market.

“Our philosophy is that instead of being spread out too far, we’d rather focus on select geographic areas,” Ward adds.

In all, FCP now controls more than 800 apartments in Central Florida, a significant chunk of a portfolio of acquisitions or financing arrangements topping $5 billion.

“When you buy multiple properties in a region, as FCP does, they go in and clean them up, improve them, and then they can provide residents with a more affordable option and a better product than the competition,” says Matt Mitchell, a managing director in commercial brokerage firm HFF’s Tampa office, who represented the seller in FCP’s Commons’ purchase.

Gottesdiener, too, says the decision to cluster properties in Florida remains part of broader strategy.

“A big part of Northland’s DNA is that the company has a long-term focus,” he says. “We typically look at things through a 10-, 15- or even 25-year horizon. We believe there’s a direct economic benefit to developing a sense of scale in a market, because that leads to higher quality — and we think renters know quality when they see it.”

Both Gottesdiener and Radow say there’s another but equally practical reason to focus ownership: employees.

“People want to be part of a growing company, because they know there’s a chance for advancement,” Radow says. “That allows us to get a more professional staff.”

To view the full article, visit https://www.businessobserverfl.com/section/detail/hitting-critical-mass/

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