Why Steadfast’s B Strategy is Plan A

By Dennis Kaiser

Irvine, CA-based Steadfast Companies is one of the country’s most prolific apartment investors. In 2016 alone, the company picked up 2,443 units across nine properties for nearly $365 million. It currently owns and/or operates more than 36,000 units in 23 states across the U.S.

It deploys a unique strategy of acquiring Class B properties in B markets, those so-called less desirable communities, as most investors are still chasing high-end deals in primary locations. Steadfast’s discovered these Class B communities often perform as well, if not better than their luxury counterparts.

Connect Media asked Steadfast REIT’s Ella Shaw Neyland to explain the secret behind that successful strategy in our latest 3 CRE Q&A.

Q: What does the renter pool look like in 2017, and what does that mean for apartment owners?

A: 2017 looks to be another solid year for apartments thanks to historically low homeownership rates, which can be attributed to a “GenerationALL” shift in renting. This means that all age groups and demographics (Millennials, Gen-Xers and Baby Boomers) are disproportionately opting for the convenience of apartment living over owning a home than ever before. This propensity toward renting comes even as mortgage rates have leveled out at historically low rates. In fact, research shows that today’s modern renter is renting twice as long before purchasing their first home, compared to the 70s. What is driving this trend? Amenities and affordability.

Americans are placing less focus on consumerism and more emphasis on experience, which the amenity-rich, flexible and social nature of apartments naturally fulfill. Apartment living is a lifestyle choice.

Additionally, income is also a significant contributor to the rise in rentership. The “GenerationALL” median annual income averages $35,000, and many Americans feel the pressures of increased healthcare, education and child care cost, out pricing many from purchasing a home.

Q: How will secondary markets/Class B successfully compete against primary markets?

A: Primary markets with bustling downtown cores will always be in demand, but at a cost. Steadfast sees the greatest value in mid-tier properties in thriving secondary markets, because these communities accommodate the budgets of most “GenerationALL” renters. Suburban communities throughout markets like Austin, Denver, Atlanta and Nashville are strong contenders, because this is where majority of job growth is happening and where the cost of living is a lot more advantageous. Secondary markets demonstrate robust population growth, declining apartment vacancies, healthy middle-class incomes, above average job growth, increased household formation and proportionate unit supply and demand.

Q: How does Steadfast capitalize on this value add strategy?

A: A strategy of acquiring quality assets in thriving markets, and then investing additional capital to make comparatively minor aesthetic improvements, can provide a quality resident experience and increase the value of the apartment. By introducing moderate upgrades to interiors when turning units between residents it enables a property to compete with newer, Class A assets without the Class A price tag, and provide a significant boost to the property’s revenue and resale value.

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For comments, questions or concerns, please contact Dennis Kaiser