Gulf Coast Multifamily

Deals are harder to come by in this convoluted multifamily market, but imagine if you acquired properties in Austin or Tampa before its astounding growth. So what do the beginnings of a growth market look like, and what are the key drivers you should identify for long-term asset appreciation??

Steven Rowe Gulf Coast Multifamily , Senior Vice President & Multifamily sales at SVN Toomey, breaks down the Gulfcoast multifamily market and why he believes it is showing signs of becoming the next growth market. When mentioning the Gulfcoast, Rowe refers to Alabama, Mississippi, and the Florida Panhandle. Rowe has had a lifetime of real estate experience and investing while living in Mobile, Alabama, for over 25 years. Out of his time spent in the Gulfcoast, the past five years have been a whirlwind of population increase and overall investment growth.?

Making a market

Multifamily does not survive independently; its performance depends on a market's economic and social factors. Employment growth is one of the main drivers of a market's ability to support multifamily, and the Port of Mobile significantly impacts the city's economy. It is the 11th largest port in the U.S. and has maintained nine straight years of double-digit shipping volume growth, providing over $22 billion of economic value to Alabama. As the port expands, industrial development has been booming in Mobile. According to the?Mobile Chamber, "1,342 jobs were created from projects announced through its Industrial Development Board and Development Authority. That's more than double the number of jobs created through the IDB in 2021." In addition, Baldwin County is expected to have 43.8% employment growth over the next ten years, 10% higher than the national average.?

When Rowe talks with other brokers in markets that have already grown tremendously, they mention how they experienced similar conditions five years ago. Rowe believes they are in the opening innings of an extended growth period, and the opportunity in multifamily is ripe. According to Rowe, the market is highly undersupplied and mostly owned by mom-and-pop.?

Mobile and Baldwin County

The Mobile market has experienced 9.2% rent growth year over year, and according to Rowe, he expects this level of rent growth to be sustained for the coming years. Legacy owners have held most of the properties since the '80s-'90s and have fallen behind on management. As a result, a substantial portion of the inventory rents is severely below the market rate. It is common to see rents for a 2 bed - 2 bath at $500; after renovation, units go for north of $1,000. Mobile County is also affordable, as purchasing assets below $100,000 per door is still standard.?

Saraland, a town on the north side of Mobile, is preferred because of its excellent school system and newer residential product. However, the area is severely undersupplied for housing, and the market occupancy is 99.5%. Last year, Rowe advised the transaction of a recently renovated project in Saraland; starting rents were initially projected to be $900, but in the end, they fully stabilized the property at $1,150.?

West Mobile consists of new inventory, mostly early 2000's builds. The area has witnessed 15% rent growth over the recent years, with an average rent of $900. Class A properties in West Mobile are fully occupied, with an average rent of $2000. This is indicative of the demand and potential for overall higher rents in the market.?

Baldwin County, the 11th fastest-growing MSA, has sub-3% vacancy rates. Baldwin County is considered the higher-end market, whereas Mobile comprises a working-class demographic. Market rent grew 11% last year to $1,345, while the average market rent for 2023 is projected to be $1,450.?According to data provided by ROCKVAL? and Trepp, Inc. , current cap rates for Baldwin County are 50 basis points lower than Mobile County.

Re:Cap Key Takeaway

The most important takeaway from the Gulfcoast multifamily market is affordability. With the majority of properties still trading for under $100k a door, operators can double the number of units in a single acquisition for the exact cost of competing in a market like Austin. In addition, its recent growth has begun to attract larger operators; Rowe believes there will be an increased level of institutional capital over the coming years. The Gulfcoast provides opportunities for traditional value add or ground-up development. It will be interesting to watch this market mature.

If you are interested in learning more about the Gulfcoast multifamily market, reach out to Steven Rowe Gulf Coast Multifamily on LinkedIn.

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