Founded in 2010, the firm originated as a “pure-play” investor in Austin, Texas apartment properties and alongside our investors primarily own and manage Class “C” and select Class “B” apartment properties in targeted Austin submarkets. Our philosophy is to specialize within Austin’s dynamic and growing Multi Housing market, thereby assembling an attractive portfolio of value-add and well-positioned apartment communities with compelling cash flow characteristics and capital appreciation potential.
Rationale for Apartment Investing
- Although strong demand for apartment properties compresses both going-in returns and internal rates of return, cash yields relative to the risk-free rate remain attractive to investors.
- The widely held view is that robust demographic trends and tighter space fundamentals will support strong apartment performance over the next several years.
- Apartments have shown far greater resiliency in holding their value during market downturns.
- The negative change in appreciation over the peak-to-trough cycle for apartments is roughly one-half to one-third less severe compared with the office, industrial and retail sectors.
- Until recently, apartments were the only property type to have capital appreciation driven by both cap rate compression and NOI growth.
- Apartments offer low space market volatility and therefore the highest risk-adjusted returns across all commercial real estate sectors.
- The apartment sector typically performs best in a rising interest rate environment and stands to benefit from the unique demographic trends forecast for the next decade.
Strategy and Execution
We began focusing on the Class “C” and “B” apartment space in Austin because we foresaw how population and economic growth would not only widen the income gap but also the spread in the rental housing sector. We firmly believe that workforce or renter by necessity housing will remain in great demand in Austin as Class A rental housing becomes more expensive and the purchasing of a home remains improbable for this demographic segment because of credit and liquidity constraints. Austin Capital Advisors believes that the fundamental shift in the home ownership paradigm has created a structural change in the housing market and economy. Home ownership is viewed now a liability, and not an ambition. Homeowners are no happier than renters, and research would indicate are often more stressed out. High home ownership in industrialized countries has even been correlated with unemployment, suggesting that home ownership – long believed to be a central determinant in creating healthy and vibrant communities – may actually be preventing some of the people in those communities from achieving the other American dream: having a job.
According to recent Marcus & Millichap research, “Class B/C operators will benefit from an increase in demand from necessity-based renters as traditionally lower-paying industries, such as hospitality and construction, expand at a faster clip.” ACA believes that as major players and institutional buyers focus on the top-tier segment of the market, smaller private investors will compete aggressively for well-located Class B/C properties, which trade at cap rates in the mid 5 to 7 percent range and can offer significant upside in rents if renovated and repositioned.
ACA feels it has identified the sector within the multifamily market that produces the best value-add, risk-adjusted investment returns. Our properties tend to be strong cash-flowing, yet are often underperforming assets that are poorly managed and/or in need of modernization and commercially standard maintenance.
Because of the intensive nature of managing Class “C” and “B” apartment communities, ACA has vertically integrated ACRE’s property management function, including in-house construction expertise and proprietary reporting systems. This integrative approach, together with our institutional discipline yet nimble organizational structure, ensures pro-active, hands-on management that produces operating efficiencies and enhances performance.
Multifamily Investment in Austin
ACRE focuses its acquisitions on well-maintained properties located in established neighborhoods in proximity to Austin’s CBD, and/or directly in the path of the city’s dynamic growth. Austin’s growing tech industry attracts many young professionals who prefer renting due to its low maintenance nature and the ease of moving should their career path lead them to a different area. Additional demographic shifts, especially the “Echo Boomers”, together with increasing immigration, are leading the way in forming households that overwhelmingly rent. Finally, changing attitudes about home ownership and tighter mortgage underwriting continue to drive a shift toward renting. Our objective is to aggregate ownership of 2,500-3,000 Class “C” and select “B” apartment units in Austin by 2015 via ACRE’s operations, thereby providing tremendous optionality in terms of exit options, as well as stable and attractive long-term cash flow. We also believe that the unique and compelling confluence of economic drivers extant in Austin’s economy will continue to spur institutional demand for Class “A” apartment properties and also significantly bolster overall investor demand for class “B” and “C” properties over the medium-to long-term.