![]() In today’s multifamily market, developers and investors are moving to take advantage of the growing demand among renters for value-add class-B and class-C apartment buildings. Essentially, with so much class-A and luxury construction currently underway, a gap has opened up in the market: apartments that can cater to middle-class tenants. These value-add projects operate on the principle of renovating and improving an older building, raising rents, and attracting tenants who are looking for something more than an aging class-B or class-C property, but who can’t afford the rents typically charged for newly built class-A units. Such projects, which work best in markets where the average rental cost of a class-B or class-C unit is significantly less than a class-A unit, allow developers and investors to benefit from the strong overall demand for rental housing without having to compete directly with newly constructed luxury properties. Additionally, investors still pay substantially less (relative to income) for class-B and class-C multifamily properties than for class-A properties. Typical cap rates accepted by investors purchasing class-B and class-C properties are currently about 220 basis points higher than the same rates for class-A assets, meaning that value-add class-B and class-C properties are becoming an increasingly smart choice for investors.
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AuthorAn experienced real estate investor and co-founder of 37th Parallel Properties in Richmond, Virginia, Chad Doty has established himself as a leader in commercial multifamily real estate. Archives
January 2017
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