Markets like Charlotte and Raleigh-Durham have gone from second-tier cities to multifamily celebrities in the past two years.
But are these secondary markets starting to become oversaturated like their neighboring major metros? Cap rates have been falling just as fast in those secondary markets, and many first-time investors and developers are flooding the region.
So, will these and other jewels of the Southeast wilt from all of this attention? Not if you ask Al Campbell, CFO for Memphis, Tenn.–based MAA. “There are a lot of jobs expected to come into the southeast region of the country in the next few years,” said Campbell, whose company has a strong foothold in the mid-west and southeast secondary markets. “There are many changes going on in manufacturing, shifting of distribution. There's a lot of markets in this area that fit our strategy very well."
What makes MAA a little different from its REIT peers is its allocation of 60 percent of its capital to larger markets, and 40 percent to secondary markets. In targeting slow and steady secondary markets, the company's portfolio has a hedge against the boom and bust cycles of more dynamic, larger metros.
Some of the markets MAA is targeting for expansion include Birmingham, Ala.; Jacksonville, Fla.; Charleston, S.C.; and Kansas City, Mo. In fact, the company recently entered Kansas City with its acquisition of the 323-unit Market Station apartments, a Class A community overlooking the Missouri River, built in 2010. And MAA is hoping to expand its presence in Kansas City to 1,500 units in the coming years, he adds.
“We believe over the long term that that’s a very important component to our strategy to produce stable cash flows. Those markets tend to have, in general, and Kansas City being a good example, pretty stable job growth over time," Campbell says. "Often times, the really big peak supply doesn’t come into those kind of markets, since there isn’t as much competition. We see that as a competitive advantage."
MAA is still scouring secondary markets for new deals with little fear of a slowdown in demand in these markets. Campbell cites Savannah and Charleston as particularly strong bets, and MAA also recently started a development in Little Rock, Ark.
“Another one that’s seen a lot of negative press has been Jacksonville. It’s a dynamic market and has a diverse economic base," he says. "It got a lot of supply in a tough period in the market, but there’s really nothing going on right now. Job growth is coming back and it’s expected to be pretty consistent in the next couple of years. It’s a good, solid secondary market.”