September 2024 Review

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We are proud to keep you up to date with the future of our company, team, and industry as a whole. In this newsletter, we look to provide you with a snapshot of the day-to-day operations of RRC, give you the inside scoop of who we are as a team, and keep you up to date with pertinent information on the current real estate market.

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Discover The Latest From RRC

At Rolling Rook Capital, we’ve been diligently evaluating the numerous deals flowing through our pipeline, carefully assessing each one to ensure it meets our rigorous criteria. Every opportunity is thoroughly examined from all angles, with a steadfast focus on our valued investors and their desired returns. Transparency remains at the core of everything we do.

Amidst ongoing inventory constraints and rising interest rates in the real estate market, it’s essential to consider these factors thoughtfully when vetting deals that align with our standards and operational strategy. After careful reflection, we’ve made adjustments to focus on assets that offer optimal returns for our investors, leading us to place greater emphasis on proven smaller multifamily and self-storage properties.

The Rolling Rook team is fully committed to identifying opportunities that maximize returns through effective strategies and tactics. With regular Level 10 meetings and quarterly Rock reviews, we consistently pursue our objectives, promote transparency, and reinforce accountability within our team. We recognize the importance of a strong operational framework and remain dedicated to continual improvement, ensuring we deliver secure and profitable investments to those who choose to invest with us.

Market Updates

The Macro

Multifamily Update

The self-storage sector is showing signs of a return to normalcy in 2024 after experiencing record-level market performance in 2022. Cushman & Wakefield's recent report highlights that transaction volume reached nearly $3.36 billion in the first half of 2024, which is consistent with pre-pandemic trends. This follows a surge in self-storage investments between 2020 and 2022, which saw nearly $50 billion in transaction volume, significantly exceeding the $35 billion recorded in the seven years prior. However, rising interest rates have caused capitalization rates to increase by 90 basis points from Q4 2022 lows to 5.9% in Q2 2024. Valuations for self-storage properties have softened, particularly in the Midwest and Southwest, which experienced declines in rent per square foot by 11.2% and 10.1%, respectively. Despite these challenges, more investment activity is expected in the latter half of 2024 as confidence returns to capital markets and property fundamentals improve (source: Modern Storage Media).

?For a more comprehensive outlook on the self-storage investment landscape, Marcus & Millichap has published its 2024 Self-Storage National Investment Forecast, which offers a detailed analysis of market trends, capital markets, and supply-demand forecasts for the sector across 36 individual markets. You can read more from their report here.

The Micro

Ohio's Multifamily Position

The Columbus, Ohio multifamily market is showing strong signs of stabilization in 2024, despite challenges like high borrowing costs and slower construction activity. Demand outpaced supply for the first time in two years, signaling a positive shift in market dynamics. The vacancy rate in Columbus stood at 8.1% in Q1 2024, slightly above the national benchmark, but it showed a tightening trend, especially in higher-quality properties. Notably, the sharpest contraction occurred in 4 & 5 Star properties, with a 10.6% vacancy rate, indicating a recovery from the peak vacancy experienced in mid-2022. Meanwhile, 3 Star properties saw a vacancy rate of 7.6%, the highest level in almost two decades. Rent growth in the first quarter was robust at 3.2%, placing Columbus among the top-performing markets in the country. However, rent growth was weakest in the higher-end properties due to an influx of new deliveries, while 3 Star and 1 & 2 Star properties experienced accelerated rent growth due to a reduced supply (Swiss Realty Group).

?Looking ahead, the construction pipeline is expected to slow down, with a 36% year-over-year decline in new supply projected for 2024 and an additional 24% reduction anticipated in 2025. This slowdown in construction, combined with ongoing demand, should further support market stabilization and rent growth in the coming years. Although transaction activity has been lower, with Q1 2024 sales volume at $103 million (about 40% below pre-pandemic averages), there has been increased activity from private equity funds, indicating opportunities for private investors to acquire discounted assets. The Columbus multifamily market's stability and growth are supported by factors like affordability, healthy population growth, and a slowing construction pipeline, making it an attractive option for investors moving forward. For more details, you can read the full report from Swiss Realty Group.

New With RRC

We’re excited to share that the past couple of months have been incredibly successful with our latest acquisition, marking our second 4-unit property purchase within the year. Since going live on Airbnb on August 16th, we’ve achieved a strong 70% occupancy rate and secured 16 separate bookings, generating solid revenue. Despite a few sleepless nights, our hard work has truly paid off. Our strategy moving forward is to maximize returns by balancing both long-term and short-term rentals, while continuing to make necessary repairs and improvements. Having two properties in the Dayton market gives us the advantage of leveraging our established processes and trusted team, which significantly reduces the trial and error often involved in managing a new property.

This newest property is ideally located, just a couple of miles from our first one and half a mile from Downtown Dayton, the University of Dayton, major restaurants, and shopping areas. We’ve inherited two tenants who are currently paying below-market rent for their 2-bedroom, 1-bath apartments, and we plan to gradually bring their rents to market levels while enhancing the property to improve the overall living experience.

As part of our strategic approach, we have invested considerable resources in gaining a deep understanding of this market. Our ongoing focus on the residential multifamily asset class allows us to manage this acquisition effectively, ensuring we provide optimal returns for our valued investors.

We extend our gratitude to all our readers and hope you continue to enjoy our updates. As we move forward toward our goals in 2024 and into 2025, we invite you to follow our progress and stay engaged with the exciting developments ahead. The course is set, and we are eager to pursue our objectives. Thank you for your ongoing support!

Investment Philosophy

Our investment strategy centers on targeting B to C-class properties, identifying those with inherent value-add potential through strategic renovations and operational enhancements. Our market selection involves a meticulous analysis, integrating distinctive trends that align with our accumulated expertise from prior service. Additionally, we actively cultivate an off-market pipeline, consistently evolving, with the primary goal of maximizing returns for our esteemed investors.

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