PI Global Investments
Private Equity

M&A Why Real Estate M&A in the Sunbelt is Set to Thrive — Mergers & Acquisitions

“For construction, development and trading activity in real estate, investors will continue to place a premium on parts of the country with rapidly growing populations, like the Sunbelt and Southeastern U.S.,” says Gary Grote, a managing director at Omaha- based Bridgepoint Investment Banking.

Texas is one state that is seeing growth, according to Conner Searcy, a managing partner at Dallas-based middle-market private equity firm Trive Capital. In April, Trive formed Trive Capital Real Estate, which among other areas, will target acquisitions and development opportunities in the multifamily subsector. Trive partnered with former Thackeray Partners executive Troy Daniel to form the fund.

“We always had an idea of getting into value-added real estate,” Searcy says. He declined to give details on the size of the fund or when it will close because the firm hasn’t started fundraising for it yet.

Apartment Hunting

“The real estate market in a lot of places is fully valued, but there are still pockets that are undervalued,” Searcy says. “We are seeing a ton of opportunities in multifamily. There are a lot of real estate investors, but not a lot are willing to buy a multifamily apartment complex with 300 units and do a full renovation.” Trive acquired Med Main in April, a 338- unit multifamily property in Houston’s medical center submarket.

Conner Searcy, managing partner, Trive Capital

Searcy adds that the firm has pinpointed certain geographies that Trive thinks will see robust job growth through 2030 with Houston being one of them. Houston has tailwind fundamentals for growth, according to Searcy. For example, Texas doesn’t have any state income tax.

“Texas is a huge beneficiary of immigration from California and from New York,” Searcy says. “You kind of look at the Sunbelt states and there are a number of cities in there that are going to see real movement in the next 10 to 15 years.” In addition to Texas, Trive is also looking for deals in Florida, South Carolina and Arizona. “There’s a long-term trend for those states to benefit from movement and not just movement, but new job creation,” Searcy adds.

Packing Warehouse Deals

The burst in e-commerce over recent years has boosted demand for warehouse space in the Sunbelt. According to one real estate investor, the more warehouses that are built, whether it comes from companies expanding or relocating entirely to benefit from lower taxes, the more jobs, which correlates to an in increased demand for multifamily housing.

“Industrials is driven by many factors,” says Ben Spencer, the co- founder of Albuquerque, N.M.-based real estate development and private equity firm Titan Development. “One is e-commerce. As e-commerce increases, it requires a tremendous amount of industrial capacity.”

Ben Spencer, co-founder, Titan Development

In May, Titan closed its third fund at $122 million. The fund will focus on building multifamily and industrial properties in growing markets across the Sunbelt. In addition to New Mexico, Spencer says Titan is also looking at developing projects in Texas and Florida.

“We’re not a financial firm that has access to capital or raises a bunch of capital,” Spencer mentions. “We’re a developer at heart who has a robust pipeline of projects that need a stable source of equity.”

Titan is not the only real estate investment firm that is interested in acquiring warehouses across the Sunbelt. In April, real estate investment trust JLL Income Property Trust purchased a Northeast Atlanta distribution center.

“The Northeast Atlanta industrial submarket has seen exceptional rent growth, leading the way for all of Atlanta’s submarkets,” said JLL CEO Allan Swaringen at the time when the deal was announced. “Industrial properties continue to be a target overweight for our portfolio given sustained strong tenant demand and a positive, long-term outlook for the sector that we believe will yield stable income for our stockholders.”

According to JLL, Atlanta is the fourth largest warehouse market in the U.S. The city has a transportation network that consists of the country’s busiest airport and the fourth largest container port for export in the U.S., On top of that, Atlanta is within a two-day drive from about 80 percent of the U.S. population.

“The direct-to-consumer movement will continue to drive deal activity in logistics and warehousing as there is an insatiable appetite for supply chain capacity,” says Bridgepoint’s Grote. “Development and transaction activity in the warehousing and logistics will continue to be robust.”

No matter the market conditions, investors will always find deals. And right now, real estate in the Sunbelt is poised for M&A.

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