SOUTHEAST SNAPSHOT, JULY 2006

Atlanta Multifamily Market

Derrick Bloom, President, Principal, Apartment Realty Advisors

The first indication that the Atlanta market is turning the corner is the increase in effective rental income. Since the beginning of 2005, the region has experienced growth of approximately 5 to 12 percent in effective rental income. Part of the reason for the swell is the small number of multifamily projects in the pipeline. In 2005, the Atlanta market only saw 4,700 deliveries, of which 1,700 have some form of condo conversion potential.

Further evidence illustrating the growth in Atlanta is the reduction of concessions being offered by multifamily owners. Just a few years ago, it was not uncommon for owners to offer 3 months of free rent. Today, prospective residents are not finding concessions, or in some regions, 3 months has shrunk to 1 month. On the average, vacancy rates are hovering around 6 percent, down from 10 percent 12 months ago, and in some regions vacancy rates are as low as 1 percent, suggesting continued strength in the market.

Recognizing the need for more rental properties, developers are starting to initiate projects that cater to residents looking for communities that are self-contained and offer all the essentials within walking distance to their community. A significant number of these projects are mixed-use developments featuring luxury buildings surrounded by retail and office space. 

One of the most significant new multifamily projects in the region is Atlantic Station being developed by Jacoby Development, Inc., AIG Global Real Estate Investment Corp., Lane Co. and Beazer Homes U.S.A. This new development will eventually deliver 5,000 houses, more than 1,100 condos and 600 apartments and lofts to the area, and is still in its initial lease-up stage, while some are already open. Being centrally located near a new IKEA store, residents will have no problem furnishing their new homes.

Another significant mixed-use development is Perimeter Place. Sembler Company has planned a large mixed-use development in this area that will include 500,000 square feet of retail space, featuring Target as the anchor store, and more than 500 units of apartments and condominiums on 42 acres. Part of the Sembler development is Lincoln Property Co./Northwestern’s Perimeter Place Center, a 323-unit, six-story luxury apartment community. This development is in the heart of the Perimeter submarket, with large offices, retailers and 15 to 20 restaurants within walking distance of the property.

The trend for mixed-use communities is also demonstrated at Highlands West Village, a 50-acre development in Atlanta’s Vinings submarket. The Highlands Companies is developing 292 for-lease condominiums and The Pacific Group is developing 120 stacked flats and 115 townhomes.  Residents enjoy easy access to a variety of restaurants, as well as Starbucks, a Publix grocery store and The Home Depot.

Due to the rising cost of developing in the suburban markets the majority of development taking place is infill. As development costs have increased in suburban areas, developers have turned their eyes to urban infill. In addition to escalating prices, the urban infill also has a higher likelihood for condo conversions which provides owners an opportunity to attract a broad audience of potential buyers including institutional investors.

Atlanta has multifamily rental developers from across the country like Dallas-based FirstWorthing, Florida-based Related Cos. and The Lynd Company of California entering the rebounding market. On the condo side, Houston-based Hines, Florida-based Related Cos. and New York-based Trump have started developments in Atlanta.  Some developers like California-based AG Spanos have come back after a couple years of inactivity in the Atlanta market to start new projects. The influx of outside developers from around the country continues to underscore the fact that Atlanta’s multifamily market is growing rapidly.

Investors should keep an eye on the potential for overbuilding in areas like Lindbergh and Perimeter Center — areas which have the most significant submarket pipelines. Although the Perimeter Center has seen little activity during the last 5 years, there are now five proposed multifamily projects in the pipeline. Lindbergh, with the newly built Lindbergh Plaza, is seeing a complete transformation with offices, retail spaces and housing all-in-one. However, there is the potential for overbuilding when it comes to the multifamily side of these developments. It is important that the market keep this growth in check in order to maintain its sustainability.

Halfway through 2006 Atlanta is seeing many new condominium projects in the pipeline with interest from investors from across the country. If the market indicators continue to show the strong growth it has already illustrated, 2006 will be another record-setting year for multifamily transactions in the Atlanta area.

— Derrick Bloom is a president and principal of Apartment Realty Advisors in Atlanta.

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