From Market Shifts to Midwest Marvels: Insights and Updates
Dear readers,
As we embark on the summer season, I wanted to take a moment to provide you with an overview of the current market landscape, discuss the exciting developments in Kansas City and the Midwest, and share some notable updates about our company.
Market Overview
After a period of cap rate expansion in most markets, there are indications of stabilization and, in some cases, even cap rate compression. This suggests a potential market shift is underway. However, it is important to note that by the time this shift becomes evident, significant discounts may no longer be available. At our company, we acknowledge that we cannot predict the future with certainty, and therefore, exclusively chasing market corrections for new acquisitions is not a wise strategy. Instead, we adopt a more versatile approach, buying properties in all market cycles and adjusting our tactics accordingly.
Contrary to popular belief, multifamily properties, especially those in the B-class category, do not necessarily have a direct correlation with recessions. In fact, based on our data, there have been multiple historical periods of recession where multifamily properties have performed well.
However, due to the current landscape, we have become more discerning than ever regarding the vintage, construction quality, and overall condition of the properties we are considering. We avoid heavy value-add deals as they carry greater exposure to construction budgets and capital expenditures. Given the prevailing high construction costs, the discounts we find in these deals are not sufficient to justify the associated risks. Moreover, these properties often come with less favorable debt terms, particularly in today's environment. Therefore, we are focusing on value-add and light value-add deals, which allow us to minimize our exposure to construction risk while enjoying superior debt terms.
Kansas City
Kansas City and Midwest Development
The Midwest, particularly Kansas City, has been experiencing a surge in development. Downtown Kansas City has witnessed a deluge of key announcements, with several projects gaining significant momentum this year. From the Crossroads Arts District to the Berkley Riverfront, development is thriving.
The Kansas City Business Journal has selected five noteworthy projects to watch, all of which have seen significant movement this year. One standout project is the Barney Allis Plaza revitalization. This $112.4 million revamp includes the construction of a new public park, a rebuilt underground parking garage with 600 spaces, and The Allis, a $64.9 million, 10-story apartment complex. This transformative project not only adds green space to Downtown Kansas City but also addresses long-standing safety concerns while contributing to the city's affordable housing goals.
Ready to Ride in 2025, the Main Street Extension project is currently under construction. You can find more information about the project, including the hotline, clicking here.
Despite a nationwide decline in asking rents from a year earlier in May, the Northeast and Midwest regions have experienced a rise of 5% in asking rates. This increase is a result of growing demand in these areas, highlighting the regional variations within the market.
Rent growth has been steady in the Midwest, home to many affordable housing markets. However, in the South and West, where rent prices surged during the pandemic due to in-migration, growth has cooled down. As more residential projects reach completion and hit the market, rent prices may experience further adjustments.
Expo Real Estate Medellin 2023
Company News
We’re excited to announce that we are under contract on a new property in a new market! We've been hinting at this in our recent updates, and now we are delighted to share this milestone with you. We expect to become very active in this new market, and the deal flow is already showing great promise. We will share more details with you soon, so stay tuned!
Additionally, we had the privilege of being invited to speak at the Expo Real Estate in Medellin, Colombia. Our team had the opportunity to share our latest updates and insights on multifamily real estate. We extend our heartfelt thanks to our Colombian partners for their warm welcome and interest in our company.
Thank you for your continued trust and partnership. We value your support and look forward to sharing further updates with you in the coming months. If you have any questions or require additional information, please do not hesitate to contact our team.
Wishing you a prosperous and joyful summer season!
Managing Partner