The Sunbelt

From Atlanta to Phoenix, cities in the southern third of the United States are growing faster than their northern counterparts, which is driving strong and continued demand for real estate.

Southern cities account for two-thirds of urban population growth in the US.

According to Census data, 10 of the nation’s 15 fastest growing cities are in the Sunbelt, with population growth in major southern cities averaging nearly 9.5% since 2010, compared with 1.8% and 3.0% in the Northeast and Midwest. Texas and Florida have seen state-wide growth, while the regional population centers of Phoenix and Atlanta each added roughly a quarter of a million residents from 2013 – 2015.

Pictured: population growth in selected cities from 2013 – 2015. Source: USA Today

Business-friendly local governments continue to draw employers from other regions.

States such as Tennessee, North Carolina, Texas, and Georgia are known more favorable tax regimes and less stringent regulatory environments compared with their coastal counterparts. These factors have combined to draw both employers and workers to the sunbelt region. From 2008 to 2015, more than 11,000 companies migrated their offices from the West Coast to the South. As of 2017, Texas hosts the headquarters of 50 Fortune 500 companies.

Pictured: the planned $100 million AT&T headquarters in Dallas.

Milder climates can mean lower building maintenance costs for property owners.

A lesser-appreciated benefit of investing in markets with relatively warm climates relates to the building maintenance expenses and risks associated with cold weather. Cold climates can cause both exterior and interior pipes to freeze, while winter storms, hail, and the like can cause power outages and exterior damage. As a consequence, buildings in warmer areas can be less risky and expensive to maintain than otherwise identical buildings located further north.

Pictured: palm trees and shoppers line Tampa’s Channelside district in January.

Investment strategies with examples

Opportunistic financing of new apartment construction

Our opportunistic financing program seeks out high return investments with a safety margin. We look for deals where the real estate partner has meaningful equity junior to our investment. In other words, they would have to lose their entire investment before we lost a dollar. We’re happy for our partners to make more money than us if we take on less risk, especially if we still get a great return too.

Buy and improve affordably-priced apartments

With many brand-new apartment buildings are going up across the country, we believe that purchasing existing, older communities at a low cost and renovating them with the aim of increasing rents offers an equally compelling upside, with a higher margin of safety. Unlike brand-new construction, buying an existing, stabilized apartment building means cash flow from tenants on day one. Additionally, mid-priced apartments tend to perform better than luxury rentals in the event of an economic downturn, as renters seek to lower their housing costs

All assets in The Sunbelt