April 2, 2018
Ari Abramson Presents at Marcus & Millichap Multifamily Forum: Southeast in Atlanta
Participating on a panel entitled “Follow the Money: Capital Sources Discuss the Southeast,” Ari Abramson, Vice President, Acquisitions for Continental Realty Corporation (CRC) provided his input and analysis regarding the most popular asset classes currently seeking capital sources; what property types are the most attractive in the Southeast; what yields are currently being offered and the perspective of the market among debt lenders.
Now in its fourth year, the forum was held at the Loudermilk Conference Center in Atlanta. Additional panelists included Marvin Banks, Co-Founder and President, M Banks Realty Partners; Jay Clark, CEO and Founder, Southeast Capital Companies; Rob Cohen, EVP, Hudson Capital; Jim Schroder, CFO, TriBridge Residential and Lee McNeer, Principal, PGIM.
Last November, Continental Realty Corporation acquired Millworks, a five-building, 345-unit apartment community located in the Buckhead section of downtown Atlanta for $80 million. According to Abramson, during the company’s due diligence and analysis of the property, they recognized the steady absorption achieved at the asset and opportunity for effective rent growth, despite offering a limited amount of up-front concessions. “The combination of organic rent growth, controlled operational expenses and limited capital improvement dollars allows for a consistent average annual yield,” Abramson told the audience.
“Millworks provided our company a strong foothold into the greater Atlanta metropolitan area that experienced the second highest growth rate in the country, with more than 80,000 new residents entering the region within the past year. The submarket has strong fundamentals in terms of population, new jobs, income and rent growth,” he added.
Investment Profile and Key Risks
Abramson explained that a newly-developed asset often generates steady cash flow which typically allows for the preservation of value over a long-hold period. In addition, acquiring a property prior to stabilization, and an off-market basis, can often allow for the achievement of below-market pricing.
“The key risks to evaluate in a newly-constructed property would be rent roll, construction-related issues, and the current and project supply of new apartment units in the immediate vicinity,” he said. “In order to achieve this investment thesis, Continental Realty implements a proactive risk management process prior to closing. This includes a full lease and file audit, an engineering review of the physical plant, and the transfer of manufacture and product warranties to our ownership.”
Inherent Rent Spread
When acquiring newly-developed assets, Continental Realty Corporation looks for assets with top demographic trends that are proximate to employment centers, transportation corridors and amenities. The company also focuses on the apartment submarkets that have performed well, including those that steadily absorbed new supply and experienced consistent occupancy and outsized rent growth.
“There exists an inherent rent spread between first generation leases that are signed during construction, or without the full suite of amenities in a stabilized community,” Abramson explained. “We closely manage the first turn of the initial lease and look to burn-off or eliminate the up-front lease-up concessions and grow effective rents.”
Continental Realty Corporation (CRC), headquartered in Baltimore and founded in 1960, is a full-service commercial real estate investment and management company. The privately-owned firm owns and manages a diversified portfolio of retail centers consisting of over 3.5 million square feet of space, as well as apartment communities featuring nearly 10,000 apartment homes. Positioned throughout the Mid-Atlantic and Southeast regions, the value of the portfolio exceeds $2 billion.