Solid Reno-Sparks multifamily fundamentals creating fierce competition for investment

Northland Investment Corporation closed on its acquisition of Lumina at Spanish Springs in February.

Northland Investment Corporation closed on its acquisition of Lumina at Spanish Springs in February. Photo: Northland Investment Corporation

By Rob Sabo

Tuesday, April 27, 2021

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Mike Campbell, associate vice president of acquisitions for Northland Investment Corporation, says Lake Tahoe is his favorite vacation destination.

Ski trips to Tahoe with some longtime Bay Area buddies are part of the reason the Boston-based executive was familiar with Reno.

“Tahoe is my favorite place to go on vacation, hands-down,” Campbell said in a recent NNBW interview. “I have spent time around Reno, and it’s a dynamic city with a lot of good things going for it.”

After several misses, Northland Investment Corporation, which owns and operates a nationwide portfolio of more than 26,000 multifamily apartment units, closed a deal in February to acquire the 330-unit Lumina at Spanish Springs property on Rolling Meadows Drive.

According to Washoe County Assessor records, Northland acquired the property, which finished construction in 2019, from Sunroad Enterprises for $100 million.

Mike Campbell

 

Lumina is the company’s first investment in the Northern Nevada multifamily market, but it likely won’t be its last, Campbell said.

“When we started looking at cities, (we look at) basic metrics like affordability, lifestyle and job opportunities — inward job migration is always huge — and Reno checks those boxes,” Campbell said. “Reno has been on our radar for a few years. We swung and missed on a couple of deals, but we were able to plant our flag with Lumina.

“Ideally, this is our anchor,” he added. “We will use this (purchase) to hopefully find some more opportunities to grow the portfolio and continue to expand our operations (in Reno-Sparks). Strategically, we are first and foremost an owner/operator, so with our long-term investment horizon, we typically try to find economies of scale by building a larger footprint.”

Resources aside, it could prove difficult for Northland to deploy additional capital in Northern Nevada. The company joins a crowded playing field with dozens of other private and institutional investors seeking to deploy investment capital in multifamily properties in Greater Reno-Sparks, two longtime regional investment brokers say.

Solid multifamily market fundamentals — high and stable occupancy and regular rental appreciation — have created fierce competition for investment opportunities, said Ted Stoever II, executive vice president of investments with Kidder Mathews in Reno.

According to Kidder Mathews’ first-quarter multifamily market report, average rents across all property types and sizes rose 3.16% to $1,424 per unit, with overall market vacancy dipping just south of 2%. The numerous large Class A apartment projects coming online on seemingly every formerly vacant lot in the region are leasing almost as fast as units are completed, Stoever said.

According to county records, Northland acquired the Lumina at Spanish Springs property for $100 million. Photo: Northland Investment Corporation

 

“We dropped almost an entire point on vacancy despite delivering units as fast as we can,” he said. “All these new high-end properties are stabilizing very quickly. As for investments, there are billions of dollars that need to be deployed out of California and into Nevada for tax reasons. The trick is finding the inventory to meet that demand.”

Billions of dollars of institutional investment money, low interest rates and unparalleled demand to deploy capital out of California and into Nevada has created a perfect storm for owners of multifamily apartment complexes.

Ben Nelson, first vice president of investments with Kidder Mathews, said numerous potential investors are 1031 exchange buyers — investors who sold multifamily properties elsewhere and need to invest sale proceeds into “like-kind” assets in order to avoid paying stiff capital gains taxes to the IRS.

Reno-Sparks, with its rapid growth, incredibly low multifamily vacancy rates and steep rental rates, is on many institutional and 1031 exchange buyers’ radar. Northland’s Campbell says his firm has noticed quite a few new faces in early bidding rounds.

The competition for investment properties is so aggressive that investors and brokers alike are relying on their networks of connections to make offers on properties before they are marketed. Finding deals that make sense for Northland has been challenging, Campbell admitted.

“Competition is very fierce and active,” he said. “There is a lot of capital flooding into the multifamily space. For us, it is about fostering good relationships and finding parties we have transacted with in the past or look forward to transacting with in the future to find ways to get deals done together.

Redfield Ridge is located near McCarran Boulevard at 4959 Talbot Lane in Reno. Photo: CBRE

 

“Those sorts of relationships are really driving some of our larger target sales.”

Stoever said 99% of the time, large multifamily property sales are off-market investment opportunities.

“Any investment broker worth their druthers has a Rolodex of institutional and syndicated investors who are ready, willing and able to jump in immediately with very short due diligence timeframes and have the cash to close,” he said. “It is motivating Ben and I to be creative and talk to developers and owners of newer projects to show them where the value is today and be creative on deploying their gains.

“We are working with existing owners and new developers and showing them where the market is right now — which is incredible — and showing them the upside of selling in a market this hot.”

Nelson said competition for investment opportunities is equally brisk with smaller multifamily complexes of 10 to 100 units. Potential investors often want to dip their toes in the investment pool by buying value-add opportunities — slightly older complexes that could benefit from a change of management or some modest renovations to reposition the assets.

Northland’s Campbell said that although his company prefers newer Class A properties — which make up about 85% of the company’s portfolio — it also considers assets that could benefit from strong management and renovation capital.

“We are looking for ‘cleaner’ assets for the most part, but we can pivot when needed to find something that maybe has had an absentee owner and maintenance has fallen by the wayside,” he said. “We are flexible enough to jump in and overcome those issues to make the residence base happy and bring more life to the property.”

The Deco, located in Victorian Square in Sparks, is now leasing. The 10-story property includes 209 units. Courtesy: Silverwing Development

 

In other recent multifamily news

CBRE recently announced it has secured $55.9 million in financing for the acquisition and renovation of Redfield Ridge, a 300-unit garden-style multifamily property at 4959 Talbot Lane in Reno.

Scott Peterson, Mark McGovern, Brian Cruz and Morgon Fraser of CBRE’s San Diego office arranged the loan on behalf of the buyer, Solana Beach, California-based Fenway Capital Advisors, according to an April 21 press release.

Built in 1986 to condo specifications, Redfield Ridge features 21 two-story apartment buildings with one- and two-bedroom units averaging 817 square feet.

“Fenway Capital Advisors will be executing an extensive renovation program, including upgrades to over 70% of the units as well as significant common area improvements,” CBRE’s Peterson said in a statement. “The property provides Fenway with an excellent value-add opportunity in a market with strong fundamentals and continued growth.”

Earlier in April, Reno-based Silverwing Development announced the opening of The Deco in Sparks, the city’s first luxury high-rise residence.

According to an April 5 press release, The Deco has 209 units ranging from studios to 2-bedrooms at sizes from 490 square feet to 1,044 square feet. The property also includes penthouse suites on the 10th floor, ranging in size from 602-1,606 sq. ft.

According to an April 7 article from the Reno Gazette Journal’s Jason Hidalgo, rents start out at roughly $1,380 for a studio and up to $3,360 a month for the larger penthouse units.

NNBW Editor Kevin MacMillan contributed to this report.

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