Top Investment Strategies for Multifamily Real Estate Syndicators

Top Investment Strategies for Multifamily Real Estate Syndicators

Multifamily real estate syndications have one goal; to create exceptional returns for their investors. At Viking Capital, we utilize two primary strategies to achieve this goal. Each is tailored to the specific dynamics of the physical property, the market cycle, and the location of the asset. In this article, we explore two of the top investment strategies for syndicators, the organic rent growth strategy or “yield play” and the Value-Add strategy, illustrating how each contributes to our overall investment approach. 

Organic Rent Growth 

Organic rent growth stems from heightened demand rather than property enhancements. Various factors, including a robust job market, proximity to major urban centers, unfavorable mortgage rates, local attractions, and tourism typically propel this uptick. 

Strong indicators of demand are evident with increased in-migration spurred by economic growth, the creation of new jobs, and an imbalance between renters and available multifamily housing options. 

Organic Rent Growth Investment Strategy 

The organic rent growth strategy hinges on two primary pathways for increasing property value. Firstly, it involves the ability to raise rents enhancing the monthly sales and cash flow, complemented by appreciation upon its eventual sale. This value appreciation is often bolstered by a thriving market characterized by robust demand, facilitating the escalation of rental prices. 

The Impact of Supply & Demand

Another crucial aspect of organic rent growth is the dynamic of supply and demand within the market. When there’s a shortage of multifamily housing options, property owners hold a favorable position, enabling them to drive up rental prices organically. This imbalance in supply and demand creates an environment where tenants are willing to pay higher rents due to limited alternatives. Additionally, factors such as urbanization trends, lifestyle preferences, and economic growth contribute to the demand for rental properties. 

By strategically positioning assets in areas experiencing population growth and employment opportunities, investors can capitalize on the organic growth potential of their rental portfolios. Recognizing and leveraging these market dynamics is pivotal for executing a successful organic rent growth strategy. 

How Viking Utilizes Organic Rent Growth

During our initial property evaluation, known as the underwriting process, our acquisitions team conducts a comprehensive analysis of various factors, with location being a key focus. We delve into economic drivers, current and projected market rent growth, occupancy levels, as well as the vintage of the property and its maintenance status. Additionally, we consider any upgrades implemented by the seller. These elements collectively guide Viking in determining the most suitable strategy.

For instance, if a property is of a newer vintage and well-maintained, it typically falls into the Core or Core Plus asset categories. In such cases, the potential for value enhancement through physical improvements may be limited. Instead, our approach involves leveraging the property’s low-basis acquisition and anticipating future appreciation upon sale.

A Real Deal: Park 33

An example of this strategy in action is our 2023 acquisition, Park 33, classified as a Core Plus asset, built in 2018, in a competitive market. By obtaining this deal as an off-market transaction, we were able to assume a loan from the seller, securing a favorable interest rate compared to obtaining new debt. This approach allowed us to capitalize on the property’s existing strong cash flow and high occupancy level. 

The Value-Add Strategy

Value-Add in multifamily real estate involves the sponsor proactively identifying and acquiring properties to implement substantial improvements or renovations. The business plan aims to enhance the property’s value, increase rental income, and strengthen its competitive position in the market, thereby maximizing appreciation upon exit. 

In a rebounding economy, the Value-Add investment strategy stands out as a top choice. By improving properties to increase Net Operating Income (NOI), sponsors can better evaluate investment deals, enhancing financial stability. Acquiring Core or Core Plus assets during economic fluctuations can be tough. Despite the risks involved, Value-Add assets offer appealing opportunities. The Value-Add strategy can ensure profitability even in challenging economic conditions with thorough market analysis and underwriting.

How Viking Utilizes the Value-Add Strategy 

Just like the organic growth strategy, it all starts with the property and deal evaluation to determine which strategy Viking Capital moves forward with. Once the location, rental market, property analysis, and occupancy levels have been evaluated we can move forward with the Value-Add process. 

Consider this scenario: Our acquisitions team discovers a property situated in an exceptional location, characterized by a flourishing market or positioned along the “path of progress,” and surrounded by numerous successful Core or Core Plus competitors, we recognize the potential for upgrading a B or B+ asset. We understand that the market can absorb significant rent increases to optimize the Net Operating Income (NOI) generated by each unit. In this instance, we have isolated that the Value-Add strategy is the right business plan for this deal. 

A Real Deal: Dawson Forest

When Viking acquired our latest deal Dawson Forest, we saw the undeniable upside potential this property offered. Situated in Dawson County, one of Georgia’s fastest-growing submarkets, this property benefits from its prime location along the “path of progress” between Atlanta and Alpharetta. This B+ asset resides within an A-rated area, surrounded by dynamic growth and economic prosperity. The region’s development is fueled by the presence of Fortune 500 companies, contributing to its vibrant atmosphere. Given robust tenant demand, a scarcity of multifamily residences, and substantial value-add potential, Viking Capital recognized the opportunity to leverage this opportunity. 

With 68% of the units primed for upgrades, the annual upside for this property after renovations will yield over $650,000 annually. This insane value will not only increase the monthly cash flow but will force appreciation and offer our investors exceptional returns. 

In Conclusion

When it comes to investment strategies, sponsors and investors have a plethora of options to explore. At Viking Capital, we undertake a meticulous evaluation of each deal, aiming to provide our investors with opportunities for optimal returns. Among the array of strategies, two prominent approaches we employ are the Organic Growth strategy and the Value-Add strategy. Despite their distinctiveness, both strategies offer unique advantages tailored to factors such as location, asset vintage, maintenance, and classification. By discerning these qualities, our team identifies the most suitable strategies and crafts investment opportunities tailored to our investors’ needs and risk appetite. 

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