What’s the economic driver in your city?
In San Francisco, it’s technology companies. In L.A., it’s the movie industry. In New Orleans, it’s the port. In Atlanta—don’t let all the Coca-Cola signs fool you—it’s real estate and it always has been.
Atlanta, Georgia: Growth Engine Of The Southeast
As a land-central city with no physical barriers impeding suburban sprawl, Atlanta has seen a huge influx of investment in commercial, multi-family, and single family buildings in the last 24 months. This trend is confirmed by the HomeUnion 2017 Single Family Rental report where single family home new permit requests grew only modestly but multi-family permit requests continue a growth trend started back in 2011.
The AlphaFlow Investment team recently visited Atlanta and spent time driving across the region to interview local residents and lenders to see what’s driving the growth in this market. While online market reports and survey data are helpful, there is no comparison to kicking the tires and viewing a region’s dynamics and key trends first hand.
What Makes The Atlanta Real Estate Market So Healthy?
Below are some trends in the Atlanta real estate market for every investor to know about:
1) Millennials Moving To Atlanta
- Atlanta is one of the biggest cities in the country to benefit from the millennial migration trend ranked #2 in a Money.com article after Austin.
- The number one factor influencing this demographic to move is the availability of well paid, first-time jobs. Atlanta ranks 4th in the nation for Fortune 500 company headquarters (Delta Airlines, SunTrust Bank, Home Depot and Coca-Cola to name a few).
- Broad, resilient economic base limiting the exposure to market and economic fluctuations.
- Nearly all of them rent. The house rental market is strong in Atlanta as it is ranked the #1 rental market opportunity in the country in HomeUnion’s 2017 Single Family Rental Report and had the 2nd lowest entry price of the top 10 markets to Memphis.
2) Shortage Of Housing Inventory In Town
If you want to know about home sales in Atlanta, then the Atlanta Realtors is where to look and they make this handy infographic as part of their June Market Brief, the most recent one available.
- 3-year population growth: 4.7%
- Year-over-year job growth: 2.7%
- Year-over-year home price growth: 8%
- Vacancies down to 5.1% and Rents are up to average $1300
Where You Want to Live
- Atlantic Station (in Midtown)
- East Point (South of downtown)
- Buckhead (North of downtown)
- Virginia Highland (East of downtown)
- Little Five Points (Southeast of downtown)
- Brookhaven (North of downtown
Where You Want to Invest
- East Point
- Beltline Communities
These are all ‘in town’ neighborhoods. ‘In town’ in Atlanta means inside I-285, the Perimeter that circles the city. Many people, not just millennials, want to move in town closer to the city and its amenities. There are simply not enough homes for everyone that wants to live there. Housing supply dropped 4.9% over June 2016, per Market Brief, and inventory sits at a low 3.2 months.
Housing starts are well below peak levels according to HomeUnion, which they attribute to low margins for entry level homes and high land costs.
House flippers have noticed the shortage too. In Atlanta, flips were just under 8% of all home sales in 2016, above the national average of 6.1%.
3) New Cities Forming
Most of Atlanta and these most desirable neighborhoods are in 2 counties: Fulton and Dekalb. These 2 counties have seen at least 5 new cities form in the last 5 years. Motivation for forming new cities include more local control and taking some power and revenue away from the county government, who they see as inept or inefficient at running their county. New cities include Brookhaven, Sandy Springs, Dunwoody and Tucker, all of which are good areas for living, investing or both.
Many of these new cities need the tax base that comes from residential property taxes to run their new city government. The result is a welcoming environment for remodelers, rehabbers, builders, infill housing and anything that takes the existing land/property and makes it more valuable.
Understanding Atlanta’s Key Areas And Ongoing Projects
- The Beltline Project: One of the city’s biggest initiatives, the Beltline, is a redevelopment project that connects 45 surrounding neighborhoods by a 22-mile loop of reused train and light rail tracks. The project also calls for 33 miles of multi-use trail, among other amenities, and will roll out in phases with 2030 earmarked for completion. Four sections of the Eastside trail are already open to the public and have encouraged revitalization of the neighborhoods, spurring redevelopment (very reminiscent of the effects the High Line project had in New York City). As an investor, you can find properties for under $120k in the Southwest region as the Westside development of the Beltline is only just getting started.
- North: Generally speaking, inside I-285, the more affluent regions are located North and Northeast of the city center. Touring the northern region, areas such as Atlantic Station and Midtown have, in recent years, been revitalized and given way to high rise condominiums and mixed-use buildings as young professionals are moving in. Tech Square, a region defined as a multi-block neighborhood where Georgia Tech has several academic buildings, has given way to the growth of a small tech community. The region is also host to the corporate headquarters of NCR Corporation.
- Northeast: The Northeast region is home to Emory University, which has a vast footprint in the Druid Hills area with new buildings expanding in the surrounding vicinity. For investors, you can still find deals in this region (mainly rehab projects as there is a lack of developed land). However, the entry price point has increased over recent years to the $700-$800k price range. The college atmosphere has taken hold in Decatur and Little Five Points area where new bars, restaurants, and high rise apartments have gentrified the area.
Heat And Shortage In The Market
You will often hear in conversation people stating that the Atlanta real estate market is “overheating” or the market has “reached its top”. While this may be true from a holistic standpoint (as one needs to be more prudent in their analysis, stress testing, and investment selection) real estate is, at its core, a local industry and needs to be evaluated at a neighborhood level, not only from a macro view. Atlanta’s real estate market may look overheated from an outside general view, but is backed by good fundamentals when you dig into its local trends at a neighborhood level.
- The number of units on the market in June is down 4.9% from last June and new listings are down 2% from last June, according to the June Atlanta Market Brief. This while demand is up 2% from 12 months ago with average and median home sales price up 6.8% and 6.5% from last June. These are certainly consistent with a hot market when demand is up, sales price is up and number of units available is down.
- Atlanta has mild weather, real estate as a top economic driver, population growth, new city formations, big corporate headquarters and offices, and most importantly for AlphaFlow, a housing shortage in the most desirable areas of the city. These qualitative factors contribute to Atlanta’s attractiveness as a market, along with the trends mentioned.
- Many ‘in town’ neighborhoods are experiencing an increase in full gut renovations as homeowners are keen to build the type of home they want in these attractive locations. Some are in, or near, the newly formed cities that need the increase in property values and taxes that come with it. Since 2015, the number of teardowns in Atlanta is growing about 7% per year. Teardowns are so common that one in town neighborhood, Tuxedo Park, put a moratorium on teardowns starting in June. Some other neighborhoods may follow Tuxedo Park, but there are still plenty of highly desirable areas where teardowns and rehabs are happening.
When there is a housing shortage in an attractive city like Atlanta, teardowns, infill housing, and rehab projects start popping up everywhere, and these are exactly the kinds of projects we fund at AlphaFlow.
These rehab projects are great potential acquisitions for AlphaFlow and we expect to see more coming out of Atlanta for the next few years. Not only do these projects boast attractive yield but they also are accompanied by seasoned local developers who are in tune with neighborhood fundamentals. The AlphaFlow Investment Team will target loans in specific regions of the Atlanta real estate market for our client’s portfolios as we see overall desirability increase with greater public and private investments.
About the author:
Miles Deamer is the Director of Investments at AlphaFlow. He is responsible for the acquisition, underwriting and execution of real estate debt investments. Before AlphaFlow, Miles was one of the earliest employees at LendingHome, helping scale the sales, operations, & servicing teams. Early in his career, Miles was a member of the credit team at First Republic Bank (NYSC:FRC) reporting directly to the Chief of Credit.
Miles received a BS in Real Estate Development from USC where he was a member of a Division I National Championship Water Polo Team.