Closing out the year with successful acquisitions, sales, and the launch of a private equity group, Capital Square founder and co-CEO Louis Rogers remains positive while preparing for 2023’s challenges.
“In spite of everything that happened in 2020 and 2021, we have seven multifamily developments in Opportunity Zones. Two are leased up and financed,” says Rogers. “The others are in construction, and everything is on budget and schedule. It has been a very difficult environment with material and labor costs, but we were able to pull it all off, and they’re all going to be just fine.”
In addition to being an active developer in the Southeast, the company is a leading sponsor of tax-advantaged real estate investments. Rogers and the firm recently celebrated the sale of Ivy Commons Apartments, a 344-unit community in Marietta, Georgia, for $75.5 million. Ivy Commons was owned by a group of Delaware statutory trust (DST) investors who realized approximately a 200% total return and 20% internal rate of return from their 1031 exchange investment.
“Capital Square was thrilled to have sponsored another successful full-cycle DST program for Section 1031 exchange and cash investors,” says Rogers. “This value-add DST program produced stable cash flow as anticipated and an exceptional profit on sale. The investors are thrilled with the outcome; most are reinvesting with Capital Square in another DST/1031 to continue the tax deferral under Section 1031.”
In July 2018, Capital Square acquired the property, which included 39 residential buildings with one- to three-bedroom units and ample community amenities. Capital Square invested roughly $2.7 million for unit renovations and community upgrades, dramatically increasing the property’s value.
Pressing forward, Capital Square acquired a Class A+ property with 237 units in the Louisville, Kentucky, suburb of Prospect in October. Rogers has a seen a resident preference for new properties this year. “The trend is to want the nicest property,” he says. Remarkably, Roger notes that throughout its over $5 billion portfolio, Capital Square averaged a 99% rent collection during the pandemic.
“We were very diligent to apply for government programs for residents who needed help. When the pandemic hit, management called every resident to find out if they had problems or needed help, and 99%-plus said, ‘I need a clean, safe place to live and work,’ as they started working from home.
“So, we made sure their Wi-Fi was fast, and we made sure to clean the lobbies and disinfect on a very frequent basis. The 1% who had problems, we did the paperwork for them, or with them depending on the state, and collected a large amount of their rent so they wouldn’t be displaced in a pandemic. That proved multifamily was the most stable asset.”
Branching out further in rentals, Capital Square launched a new corporate division this year that focuses on single-family build-to-rent (BTR) homes and nontraditional investment opportunities. “The BTR homes are for people who have outgrown an apartment but are still in rental housing. Maybe you have a roommate, but more typically a child or a second child, and you can afford a home to rent but can’t afford to buy one.
“We’re building and buying BTR communities for those residents—the renter by necessity. I think people want to own a home and will own a home if they work at it, but just not right now. We have some apartments with three- and four-bedroom units that are full. They almost never come up because there’s such a demand from families. We believe the BTR communities will be the next step as people get older and advance their families.”
As warnings swirl to batten the hatches, Rogers is hesitant of halting progress and construction. “It’s a mistake [to stop building]. We go back to 2008 when we stopped building housing and created a housing shortage. Lots of projects went on the sidelines with the pandemic; now we’re short housing even more, and it’s going to continue.”
While Capital Square plans to keep developing and acquiring new properties, Rogers believes that multifamily and rent growth will be okay. He explains, “Our crystal ball says that everything just backs off a little. Rent growth will level back off to the average. Apartments do great in good times and in average times.”
And for its investors, the firm plans to keep things safe while delivering healthy returns. “We’re biased toward safety. We’re low leverage. It’s good downside protection and inflation protection. If things normalize, it’ll be just fine,” he states positively.
In addition to the acquired Kentucky property, within the last four months, Capital Square has also secured a 200-unit community in Georgia; a 262-unit Class A community in Virginia; a two-property portfolio of 305 apartments in North Carolina; and a luxury 403-unit community in the Washington, D.C., suburb of Woodbridge, Virginia.
Rogers concludes, “It’s been so good, and it’s going [to continue] to be good but just less frothy, and that’s okay.”
