Matt Ferrari

TruAmerica Multifamily is expecting to complete $1 billion in acquisition volume this year. This goal matches the firm's strong acquisition activity in 2018, which hit $960 million. As it has since its inception, TruAmerica will continue to target class-B apartment product, but this year, the firm will also enter new markets in the mid-Atlantic as well as secondary markets on the West and East Coasts.

“Our broader plan for 2019 is to acquire $900 million to $1 billion in acquisitions of class-B apartment in first- and second-ring suburbs around major metros, such as Denver and Orlando,” Matt Ferrari, senior managing director of acquisitions at TruAmerica, tells GlobeSt.com. “Last year, we were able to close $960 million in assets with that profile, so we have a similar goal for 2019. As of today, we have closed $310 million with another $200 million under contract.”

TruAmerica recently acquired the 312-unit Loretto Heights apartment community in Denver for $72.3 million and the 272-unit Legends at Lake Mary apartment community in Orlando for $54 million. Loretto Heights follows TruAmerica's acquisition strategy, while Lake Mary is a newer product; however, the firm plans to execute a similar value-add business plan. “It is late 90s with very large floor plans and attached garages. It is very unique product, and nothing like it will be built again. It is very low density in an A-rated suburb with A-rated schools,” says Ferrari.

As the cycle grows longer, investor sentiment has shifted. Many buyers are bracing—if not expecting—for a recession in the next 12 to 18 months. However, Ferrari says the firm continues to be bullish on the class-B multifamily niche, which it believes offers the best returns. “In 2013 when we were formed, our investment thesis was to buy class-B apartments in first- and second-ring suburbs around major metros, and very few others had that same investment thesis,” says Ferrari. “That thesis continues to play out, and I think that is proven by the fact that a lot of other equity has come into this space in the last couple of years. That has certainly made it more competitive and compressed returns, but we still think that relative to other core and core-plus assets in multifamily, we can still get the best returns in this space.”

The supply-demand dynamics have helped to create continued strong returns in multifamily, particularly in the class-B space. In many markets, housing demand has outpaced supply, and rising construction costs will likely continue to temper new development. “In 2018, construction cost inflation was well beyond rent growth inflation. If you look at a lot of the markets where we have bought historically, rent growth inflation was mid-single digits. It is now 3% to 4%,” says Ferrari. “That is still healthy, but construction cost inflation is double that.”

This year, TruAmerica will target mid-Atlantic markets, like Atlanta, Charlotte, Raleigh and Nashville. “That will round out our exposure to East Coast and West Coast markets,” says Ferrari. “We are still buying more in secondary markets where there is still very healthy rent growth relative to the gateway markets, like Las Vegas, Phoenix, Denver, Salt Lake City, Tampa and Orlando. There continues to be outsized growth in those markets.” While it is focusing on these areas, the firm will still continue to look for deals in more mature markets, like Southern California and Seattle.