Greensboro, N.C.—After several years of crippling job losses, North Carolina’s Triad region is finally adding new jobs, and multifamily developers have kicked off a new wave of development in anticipation of the economic resurgence.
The Triad, which encompasses 12 counties and consists primarily of Greensboro, High Point, and Winston-Salem, has roughly 1,800 apartment units under construction. Another 4,000 units are planned, according to Carolinas Real Data.
“The Triad has hit bottom, and we are starting to see a rebound in the economy,” said Bryon Nelson, a Greensboro native and executive vice president of Twin City Management, Inc., a Greensboro-based firm that manages six properties totaling 1,600 units in the Triad area. “By the time the development is on line, we’ll be able to sustain better rental rates,” he added.
In fact, Carolinas Real Data estimates that demand will outpace new supply into next year, and based on the number of units currently under construction, occupancy rates should approach 92 percent in the next 12 months, with rental rates rising 2 percent in 2008.
Robust development pipeline
For decades, textiles and furniture manufacturing supported the Triad’s economy. But over the past 12 years, North Carolina has lost more than 250,000 old-line manufacturing jobs—most of them in the Triad Region.
That’s why the Triad has been busy reinventing itself. Today the region’s economy is based on highly skilled manufacturing, corporate headquarters, and logistics, according to Clarke Martin, executive director of the Triad Apartment Association.
Over the past 12 months, the Triad gained more than 23,000 jobs, pushing the unemployment rate to a three-year low of 4.4 percent, according to the North Carolina Employment Security Commission. For example, Polo.com, the online site for Polo Ralph Lauren, will create 250 jobs at its new distribution center in High Point, while FedEx is opening a new hub in 2008.
The improved economy has had a positive impact on the multifamily market. Currently, the Triad’s multifamily vacancy rate is 9 percent, the lowest it’s been since 2001. Over the past 12 months, rental rates increased an average of 1.4 percent to $622, according to Carolinas Real Data.
Greensboro-based Blue Ridge Companies’ 600-unit Triad portfolio is about 94 percent occupied, an increase of about 2 percent over the past 12 months, according to Director of Property Management Susan Passmore. During that same time, the Greensboro-based company has been able to raise rents about 3 percent.
“Last year was great and it seems to be carrying over to 2007,” said Rich Fox, vice president of Capstone Management Co., estimating that the Greensboro-based owner achieved net operating income growth of 6 percent to 7 percent in 2006 for its Triad portfolio, which consists of 1,400 units.
“People look at the pieces of the economic puzzle that are coming together and see the Triad as a pretty attractive spot,” Martin said. “The optimism is homegrown.”
Indeed, local developers are behind most, if not all, of the existing and planned construction. “These people live and breathe Greensboro, and they know what’s going on,” Martin said. They have the option to build in Raleigh or Charlotte, but they see those markets as overbuilt.”
Capstone, for example, is developing the 188-unit Battleground North Village on the outskirts of Greensboro. The Class A apartment community delivered its first buildings in June. “We were looking at some rate increases before we even open,” Fox said, adding that the company pushed rental rates by 2 percent.
Blue Ridge Cos. has three properties totaling about 700 units under construction in the Triad, including the 360-unit Reserve at Adams Farm, which is scheduled to open in the first quarter of 2008. “We think demand will be strong, despite the new inventory,” Passmore said.
Industry experts aren’t worried about overbuilding, although the number of planned units has raised a few concerns. “For a market this size, 4,000 units is a lot to add, but it all comes down to timing,” said Scott Gerlach, a team leader in KeyBank’s Charlotte, N.C., office, adding that typically not all planned projects actually get built. “We are pretty optimistic on the Triad and would love to increase our exposure in that market.”
Big market buyers
KeyBank isn’t the only lender or investor that would like to get a piece of the region’s apartment market. “There’s a tremendous amount of money looking in the Triad,” said Peter Placentino, vice president of Brown Investment Properties, Inc., a Greensboro-based firm that owns and manages 17 properties totaling about 2,500 units. “There’s always been interest, but never to the degree that we’ve seen in the past 18 months.”
In 2006, more than $420 million worth of apartment assets in the Triad changed hands at an average cap rate of 7.79 percent, according to data compiled by Jim Scofield, an adviser with Sperry Van Ness in Raleigh, N.C. Prices per unit ranged from $26,500 to $75,000.
Many local players are taking advantage of the strong demand. Brown Investment Properties, for example, has been an active seller, disposing of four properties totaling 672 units in the past 12 months. The properties, which ranged from 7 years old to 32 years old, traded at cap rates ranging from 6.5 percent to 7.25 percent, Placentino said. The firm also acquired three properties—all of them value-added opportunities.
Similarly, Brantley Properties bought 420 units in the Triad area last year, bringing its portfolio to about 700 units. “We’re out looking for deals every day, but the Triad is a highly competitive acquisition market even though most investors consider it to be a tertiary market,” said Vice President Cooper Brantley.
Scofield predicted that 2007 will be even busier, as 24 properties totaling 4,700 units were on the market as of mid-June. He recently brokered the sale of Hidden Lakes Apartments, a 483-unit apartment community, to Core Realty Partners, a Newport Beach, Calif.-based tenant-in-common buyer. The Class C property sold for $40,580 per unit, or $19.6 million.
“Everyone can see the prosperity in the Triad, and it will attract even more investors in the coming year,” Scofield concluded.