Multifamily Dive
By Leslie Shaver
May 23, 2022

In an environment where apartment investors have been circling Southeastern metros, Northland stands out for its focus on Atlanta.

Since 2020, the Newton, Massachusetts-based national real estate private equity firm has acquired 1,300 apartments, totaling $270 million, and $250 million in land for future development in Georgia.

Atlanta “has a tremendous story with varying industries growing there at a rapid pace since the global financial crisis, a diverse economy, a diverse population and the continued inward migration from nearby states and other high-cost jurisdictions,” said Mike Campbell, Northland’s associate vice president of investments. “It has set itself apart as one of the top destinations in the Southeast.”

But Northland — which ranked No. 47 with 25,519 units on the most recent National Multifamily Housing Council Top 50 — has its sights set beyond just Atlanta and the Southeast. It also owns properties in Texas, New Mexico, Arizona, Colorado, Connecticut and Massachusetts, including a large development project in its hometown.

Here, Campbell talks with Multifamily Dive about overbuilding, the hunt for yield and where cap rates are going.

This interview has been edited for brevity and clarity.

MULTIFAMILY DIVE: For years, the Southeastern markets were considered commodity metros that could easily be overbuilt. Has something changed there, structurally, to make that less of a concern?

Mike Campbell: Houston would be a great example of a market that does concern us in terms of oversupply. In Dallas, we have similar beliefs. Specifically, in Houston, there’s no zoning code. You can build wherever you want, wherever you want.

Atlanta has taken a very pragmatic and thoughtful approach to how things get approved and how it’s developing neighborhoods. Working within metros like that is more of our focus. As operators throughout the U.S., we know the number one thing that will slow down rents is development.

Has the transaction market cooled at all recently?

The biggest thing we’re seeing is that brokers aren’t blowing through their guidance the same way that they were for the last 18 months. Deals that were running 10% to 15% over their asking guidance are coming in at like 3% to 5% below guidance, but it’s still within their ranges.

It also varies by product type. Some of the core class A stuff has fared better because a lot of those buyers are the same buyers that were always there. They weren’t chasing short-term flips and high-yield value-add projects.

So, for companies that are buying on a basis play and looking at the cost per unit or cost per square foot, it might be light compared to where we were in Q4 2021. But that’s still 30% over 2019. So when you put it into perspective, it’s not like we’ve seen a dramatic correction from the massive price run-up through the pandemic.

Have cap rates been moving up?

There was a point in time last year where we were seeing a lot of trades in the low to mid threes. And now I’d say they are probably mid threes to high fours on average. But trying to find a four is still pretty tough just because of the competitive nature of core product. It’s very low-leverage borrowers who are looking at that. They’re not as impacted by the interest rates hitting them. We’ve seen better pricing and a lot of adjustments across the market on the value-add space.

The Southeast has been hot. Are the other regions you’re in just as competitive?

Through last year, the competition was pretty aggressive everywhere — even in the Midwest. One of the things that we found as we started to look through the Midwest was that many buyers who were either coastal buyers or who used to invest either in the Southeast, Southwest or Mountain States were getting priced out of those areas and starting to look towards the Midwestern states.

We saw large institutional groups in Kansas City, Missouri; Minneapolis; Madison, Wisconsin or Milwaukee, Wisconsin. We were seeing these groups that we regularly saw throughout Texas and Florida in the prior year. It seems like a lot of groups of our size and investment scope started trying to go where there would be a bit more yield. Even in Kansas City, we’ve seen deals trading for sub-four caps.

How did you adjust?

There came a point in time when we started to refocus and pick our markets very carefully because there was almost no pricing spread for risk between markets. That’s how we started to pivot and allocate more towards Atlanta because it is a stable Southeastern market that we believe in for the very long term.

Rochester, Minnesota, [another place Northland recently made a purchase] is anchored by the Mayo Clinic. The likelihood of them shutting down and leaving that market is incredibly low. In the Northeast, we’re typically developing because it’s where we’re based and where we got our start. But we’re looking at contrarian plays out as far west as California — in the Bay Area and at areas that haven’t recovered fully.

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The Minnesota commercial real estate market remains an attractive destination for investors. And while much of this investment activity is centered in the Twin Cities itself, Minneapolis and St. Paul aren’t the only municipalities drawing investor dollars. No, investors are sinking their money into commercial real estate across the state, as one recent transaction proves.

Multifamily investor Northland has made its entrance into one of these markets, Rochester, Minnesota, about 86 miles from Minneapolis, acquiring SoRoc on Maine, a 186-unit garden community spanning three three-story residential buildings.

Mike Campbell, associate vice president of acquisitions with Newton, Massachusetts-based Northland, said that the company each year canvasses the country for secondary and tertiary markets that boast strong demographics and equally strong public/private partnerships.
This search put the Minneapolis-St. Paul area, and any communities within an hour-and-a-half drive or so, on Northland’s radar.

Campbell said that Rochester made sense because of its strong demographics, stable employment base and busy downtown area.
And there’s affordability. Northland prefers to invest in multifamily properties in which the rents are affordable to most nearby potential tenants.

“Affordability is huge for us,” Campbell said. “To know that residents in the market are comfortably able to afford the rents is important for us. That doesn’t always happen in some of the higher-cost markets in the country. The markets we look for are ones in which residents aren’t overburdened by rents.”

SoRoc on Maine itself was attractive to Northland, too, Campbell said. The property has undeveloped land adjacent to it, land that Northland plans to develop with 160 to 200 more apartment units, all of which will be part of an expanded SoRoc on Maine.

The hope is to start this construction within a year of acquiring the property, Campbell said.

This isn’t the first time that Northland will take such an approach. Campbell said that the company purchased a multifamily property in Santa Fe, New Mexico, that also had a small parcel of adjacent land. Northland built new units here, too, also incorporating them into the existing apartment complex.

Each of the existing buildings of SoRoc on Maine offers studio, one-, two-and three-bedroom units. SoRoc on Maine also boasts a variety of indoor and outdoor amenities. This includes a central green and pond, a pool, hot tub deck and bocce ball court.

SoRoc on Maine also benefits from its strong location. The apartment complex is near downtown Rochester, home to the headquarters of the Mayo Clinic and 3 million square feet of office and data center space for IBM.

Campbell said that Northland plans on investing in additional multifamily properties in Minnesota.

“Our ultimate goal is to establish a foothold in an area,” Campbell said. “We like to build a portfolio of units within a close radius of the existing properties we hold.”

Northland owns and operates a multifamily portfolio that includes more than 26,000 units across the United States. The Rochester acquisition adds to Northland’s portfolio of long-term markets within New England, Austin and the Southwestern and Southeastern United States.

Campbell said that multifamily properties consisted of 99 percent of Northland’s portfolio before the pandemic. That focus has only accelerated since COVID-19 hit, he said.

“Despite an influx of capital into the space and very aggressive and elevated competition, multifamily continues to be our bread and butter,” Campbell said.

Why has multifamily remained such a favored asset class for investors? Campbell said that the supply of single-family homes remains low, something that is sending more people toward apartments.

“We have almost four generations of Americans competing for the same housing now,” Campbell said. “The stock is very limited. Rentals continue to be an option for those who haven’t been able to buy. That seems to be pervasive regardless of market across the United States. For now, we don’t see that trend changing.”

Then there are the number of new investors moving away from assets such as office and retail, product types that have been hit hard by the pandemic, and putting their dollars instead into multifamily.

“Multifamily is more inflation-proof,” Campbell said. “It offers better risk-adjusted returns. It provides some predictable cash flow in otherwise uncertain economic times.”

The post It’s not just the Twin Cities: Investors attracted to entire state’s commercial real estate market appeared first on Northland.

ROCHESTER, MN (February 16, 2022) — Northland announced its entrance into the Rochester, Minnesota market with the acquisition of SoRoc on Maine, a 186-unit garden-style community. The property spans 6.82 acres and consists of three, three-story residential buildings offering studio, one-, two-, and three-bedroom homes complete with underground parking.

Located along the Broadway Avenue corridor, SoRoc on Maine boasts an expansive variety of indoor and outdoor amenities. A spacious central green and pond provides residents with a vast open space inclusive of a large pool and hot tub deck, a bocce ball court and more. Connected to the pool is the stand-alone clubhouse, which offers rentable event space complete with entertainment options such as a pool table, shuffleboard, high top bar, coffee bar, and commercial kitchen. Unrivaled apartment interiors give residents a choice of unique floorplans and color schemes, all featuring high ceilings, quartz kitchen counters, stainless-steel appliances, side by side washers and dryers, dual basin undermount sinks, and chrome plumbing fixtures.

“Rochester is medium size city with two of the best anchor employers in the country, IBM and Mayo Clinic. In SoRoc, we have secured the highest quality suburban apartment community in the city, and with rents still highly affordable at below 20% of median household income,” said Mike Campbell, Associate Vice President of Acquisitions. “And with a shovel ready second phase, Northland has the exciting opportunity to bring 200 more apartments to the Rochester market and to execute on our expanding development capability.”

Residents of SoRoc on Maine are provided shuttle access to the Mayo Clinic headquarters in downtown Rochester. The world-renowned medical center has fueled the city’s growth with continued support from the state of Minnesota. The “Destination Medical Center” is a robust 20-year $5.6 billion economic development public-private initiative. In addition, global technology giant IBM’s combined three million square feet of office and data center space are nearby and have transformed Rochester into a bustling innovation hub. The Southern Rochester area also boasts major retailers, fast-casual dining, and hotel options.

Northland owns and operates a diversified multifamily portfolio that includes more than 26,000 units across the U.S. These acquisitions add to Northland’s portfolio of long-term markets within New England, Austin, and Southwestern and Southeastern United States.

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Northland recently acquired Parke Place, a newly constructed residential community in Prescott Valley that offers standalone residences, a new asset class for the firm. This strategic investment leverages the historic demand for build-to-rent homes, currently one of the best-performing U.S. housing asset classes.

Parke Place features 145 single-family rental homes and duplexes with one-, two- and three-bedroom options in standalone and side-by-side style buildings with private fenced-in yards. The development spans 13 acres.

This marks Northland’s seventh community in Arizona and its second in the Prescott market following the acquisition of the nearby Homestead Talking Glass apartment community in November 2021.

“We’re thrilled to continue the expansion of Northland’s portfolio in thriving northern Arizona,” said Mike Campbell, Northland’s associate vice president of investments. “Parke Place is an ideal addition to our residential portfolio as it provides a unique blend of single-family living within an amenity-rich community. Not only does Prescott continue to see strong economic activity, the area also offers residents the opportunity to enjoy an active downtown lifestyle amid Arizona’s stunning landscape.”

The post Northland’s Strategic Investment Leverages Historic Demand for BTR Homes appeared first on Northland.

PRESCOTT VALLEY, AZ (November 4, 2021) – Northland Investment Corporation today announced the acquisition of Homestead Talking Glass, a luxurious residential community in Prescott Valley, Arizona. Featuring 214 one-, two-, and three-bedroom homes across 15 buildings, the development offers a best-in-class residential experience with top-of-the-line homes in a thriving location. This property marks Northland’s entrance into the Prescott market and is its sixth Arizona community.

“With its beautifully appointed homes, luxurious amenities and convenient lifestyle, Homestead Talking Glass is an ideal addition to our portfolio,” said Mike Campbell, Northland’s Associate Vice President of Investments. “Arizona has long been one of our top-performing markets, and we are thrilled to expand our presence in the region with this acquisition.”

The homes at Homestead Talking Glass are situated across 9.4 sprawling acres of land. Each spacious apartment features nine-foot ceilings, modern kitchens with custom cabinetry, granite countertops, gourmet islands, tile backsplashes, and stainless-steel energy efficient appliances. Residents enjoy a variety of features that include walk-in closets, recessed lighting, full-sized in-home washers and dryers, private balconies and patios, and stunning city and mountain views. A suite of resort-inspired amenities provides an enhanced lifestyle for residents and includes a pool and spa; an outdoor pavilion and covered ramada that features a sitting area, TV and lawn games; a 24-hour fitness center with a virtual trainer; an on-site resident cinema room; a private dog park and indoor dog washing station; a spacious indoor lounge with a sitting area, TV, fireplace, and spacious kitchen; complimentary concierge services; and outdoor gas grilling stations.

Homestead Talking Glass also offers residents convenient proximity to community amenities and attractions. Its prime location in downtown Prescott Valley, known as the Entertainment District, is walking distance to premier shopping, dining and entertainment offerings, as well as quick access to highways 69 and 89A. Popular nearby establishments include Gabby’s Grill, Colt Grill, the Saturday morning Farmer’s Market, the Findlay Toyota Center sports and concert arena, and several nearby nature trails.

Northland owns and operates five other properties in Arizona, including the Villas at San Dorado and The Canyons at Linda Vista Trail in Oro Valley and Pima Canyon, Promontory, and Hilands in Tucson.

The post Northland Expands Arizona Portfolio with Acquisition of Homestead Talking Glass in Prescott Valley appeared first on Northland.

OCALA, FL (October 18, 2021) – Northland Investment Corporation today announced the acquisition of Saddleworth Green, an expansive residential community located in Ocala, Florida, formerly known as Steeples Apartments. The property offers 480 garden-style apartment homes situated across 35 two-story buildings sitting on 44 secluded acres. Northland will be investing nearly $2M in renovations and aesthetic improvements across the property to optimize the resident experience.

“Saddleworth Green offers charming homes, expansive amenities, and an unmatched lifestyle on a lush and sprawling landscape located within one of Florida’s most vibrant communities, and we couldn’t be more excited to add it to the Northland portfolio,” said Mike Campbell, Associate Vice President of Investments at Northland. “Ocala’s beautiful natural elements and convenient lifestyle offerings make it an ideal place to live. We are thrilled to bolster our presence in the region through this acquisition and look forward to providing a refreshed and outstanding lifestyle for its residents.”

The property’s beautifully appointed one-, two-, and three-bedroom homes have recently been renovated with upgraded kitchens and bathrooms that feature stainless steel appliances, washer and dryer connections, new cabinetry, updated light fixtures, granite countertops, and whirlpool garden tubs. Its resort-inspired lifestyle is emphasized through an array of active amenities, including nature trails, two resort-style swimming pools, an outdoor California kitchen, a tennis court, and a pickleball court. Additionally, residents can take advantage of the state-of-the-art fitness center with a yoga room and an exclusive resident lounge, or let their pets explore the bark park.

Saddleworth Green is located in Ocala’s Southeast side, just minutes from Northland’s other local property, The Estates at Heathbrook. It is also ideally situated just two miles from the College of Central Florida, Paddock Mall, and Shady Oaks Shopping Center. In addition, Publix is located just steps away, while Ocala Regional Medical Center is 20 minutes away and the nearby FL-40 W allows for quick and easy access to Silver Springs.

Northland is the second-largest multifamily owner and operator in Florida. The company’s extensive portfolio includes properties in Fort Myers, Melbourne, West Palm Beach, Orlando, Boynton Beach, Bradenton, Jupiter, Plantation, Sanford, Coconut Creek, Tampa, Indialantic, Orange City, Fort Lauderdale, Bonita Springs, and Land O’Lakes.

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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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The investor enters the market with the purchase of Lumina at Spanish Springs, a 330-unit apartment complex in the Reno-Sparks area.

Northland Investment Corp. has entered the Nevada market. The investor has acquired Lumina at Spanish Springs, a 330-unit apartment complex in the Reno-Sparks area after tracking the market for several years. The property is a new-construction garden-style community that had a healthy leasing activity through the pandemic.

“We have been tracking the Nevada market for several years now. Most major cities in Nevada are very tax-friendly and it has a low cost of living, so we have seen a lot of inward migration,” Mike Campbell, associate VP of investments at Northland, tells GlobeSt.com. “We identified Nevada several years ago as target market. We have had some swings and misses, but this was an opportunity for us to get a foothold with brand new class-A garden product that really checks all of the boxes for us.”

Lumina at Spanish Springs is a typical investment for the firm, which targets strong suburban locations in the Sunbelt region. Currently, 50% of the firm’s portfolio is located in the Sunbelt region. “It really fit our strengths and competencies as well as our future goals to continue in this space,” adds Campbell.

While Nevada—including Reno and Las Vegas—have been considered target investment markers for the last several years, the state was also hit hard by the loss of tourism and gaming revenue during the pandemic. However, Campbell says the market also showed resiliency over the last year. “The local gaming industry was greatly impacted, but over the last five years, the local market has diversified away from that industry as the primary source of employment in the area,” he says. “We have seen that with the development of the TRI Center and a lot of Bay Area companies that are starting to expand operations as secondary offices. Over the last 12 months, we have seen a lot of growth and there has been a lot of people that have fled to secondary locations for a better quality of life with lower costs. So, overall, we have seen positive trends.”

The purchase will likely be a catalyst for more growth in the region. “We consider ourselves to be broadly opportunistic. Now that we have a flag planted in the market, we will look broadly at more garden opportunities, mid-rise, high-rise and development plays,” says Campbell. “For us, it is a matter of having that first flag planted and then finding opportunities to grow. Given our nature and the ability to look at more complex deals, it is really a luxury that we found something that we consider our bread-and-butter, and now we can look at the more opportunistic deals that will help us grow.”

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