Middle-Market Multifamily Housing Construction A Bright Spot In A Sector That's Ground To A Halt

City workers who find owning a home is out of reach financially, are discovering that adding to their commute is the easiest way to find housing they can afford.

They’re ending up in middle-market, suburban rental properties that lease for $1,600 to $2,500 per month — a part of the multifamily asset class that’s one of the few success stories for investors this year.

Developers of middle-market apartments are finding demand, somewhat easier financing and less regulation have allowed them to focus on building housing with a bit of luxury and some appealing amenities.

“I’ve been saying for a long time that our middle-market product does better in recessionary times where you see more concessions and not as much rent growth,” Madison Capital Founder and CEO Ryan Hanks told Benzinga. “Someone living in downtown Nashville or Charlotte would pay $3,000 or more for an apartment but are now driving 20 to 30 minutes outside of the city to save money.”

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Madison, a Charlotte, North Carolina-based real estate development and investment firm focusing on the multifamily, self-storage, boat and RV sectors, has 14 projects under construction and an additional 22 in the pipeline. The company focuses on the Southeastern U.S. with middle-market apartments throughout Florida, the Carolinas and the Atlanta suburbs.

A significant advantage for middle-market multifamily investors focusing on the suburbs is a decreased need to jump through zoning hoops. Some states are realizing that easing restrictions is an excellent way to keep investors building properties. NPR recently reported that three states — Oregon, California and Maine — and a handful of cities have already eased their zoning restrictions. NPR referred to middle-market apartments as the "missing middle,” built to fill the gap between single-family homes and high-rise apartments.

Hanks says the popularity of middle-market apartments is not just the rental price but the fact that, from an investor standpoint, it’s just a more efficient way to build.

“There’s not as much wasted space and materials, there are no architectural unknowns and not a lot of site work. That saves money,” he said.

Hanks also believes the timing is right, with much of the multifamily investment and construction having ground to a halt this year.

“We’re aggressively pursuing more deals and continue to build our pipeline,” he said. “Those doing this now are going to be rewarded in a few years when there will be nothing developed because the building stopped.”

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Photo provided by Madison Communities