Current Events: The Search for Yield in Smaller Markets

Thank you for taking a quick listen to what I have to say today! Would love to hear back from you on your thoughts.

Here’s an article that confirms what we’ve been thinking for the last year. It’s called “Multi-family Values Increasing Faster in Suburbs and Smaller Metros.” There’s another companion article as well. Both are from Wealthmanagement.com in their real estate section. I find their articles to be very insightful and helpful.

The premise of the article is essentially that there is so much competition for multi-family in the primary markets, such as Nashville. Nashville has not always been a primary market, but it is these days. A lot of people are looking, a lot of investors are looking outside primary markets. The other article is actually saying some are moving on to tertiary markets, so they’re going beyond the secondary and into tertiary markets.

Now, at Harvard Grace Capital we’ve been focused on Huntsville, Alabama and the Tennessee valley, northern Alabama, southern middle Tennessee region for a long time now. We find it to be rich with opportunity, and yes we’re seeing more competition in deals that we’re pursuing as well. So we wanted to share these articles and would love to hear your thoughts. Why is there more competition? Because typically the institutional investors won’t look at a deal in a tertiary market. In the past they haven’t had to. They’ve got enough capital that most primary markets can satisfy their deal pipeline. I suspect that’s going to change, so I expect competition to increase, although I do expect interest rates to cool down the cap rate increases somewhat. At the end of the day, all investors are chasing yield at one level or another, so the smaller independent, north American-based investor is having to look at these other markets to get the yield that they are going for.

Would love to hear your comments on this! Ping me back and let’s start a conversation.