Bain, Magnolia Capital Form $900M JV to Buy Sunbelt Apartments

Bain Capital Real Estate and Magnolia Capital have formed a $900 million joint venture. The partnership plans to acquire multifamily properties in both primary and secondary markets throughout the US via a value-add strategy. They will execute this plan over the next several years.

While this joint venture has the capacity to invest nationally, it plans to focus in the sunbelt region, which has seen tremendous growth in recent years. More specifically, it is focusing on garden-style apartments with a middle-income demographic. Under the value-add strategy, target properties will likely be 1975 to 2000 construction that will support a improvements. Capital expenditures will include upgrades to unit interiors, building exteriors and amenity spaces as well as improving operations and property management house.

The sunbelt has become a hotspot for apartment activity. The region has attracted residents from more expensive markets on the two coasts, and capital has exuberantly followed. In fact, a recent interview with William Spransy, CFO of North Carolina-based Eller Capital, says that most capital is coming from the northeast and California, the same markets seeing an exodus of residents to sunbelt cities. This trend was already in place before the pandemic, but the coronavirus outbreak has fueled even more growth for the region.

A recent report from Moody’s Analytics tracking rent growth during the pandemic showed that three of the top five markets with rent growth are located in the sunbelt region, Knoxville, Phoenix and Nashville. Knoxville and Phoenix have seen 4.9% and 4.6% rent growth respectively, and Nashville rents have increased 4%.

While multifamily has not been exempt from the impacts of the recession—with challenges ranging from decreased rent collections to falling occupancy and rising concessions—investors remain bullish on the asset class. CGI Strategies, for example, have announced a plan to deploy $500 million in capital over the next 12 months to acquire multifamily properties throughout the US, and it plans to increase its assets under management to $1 billion to $5 billion in the next five years.

Bain Capital and Magnolia seem equally as emphatic about the asset class. Kavindi Wickremage of Bain Capital said in a statement that long-term need for middle-income housing in US markets that have struggled with affordability, and the goal of the partnership is to increase the supply of middle-income housing. These fundamentals are foundational to the investment strategy and confidence in the asset class.