The pandemic has accelerated ongoing trends and shifted priorities for investors and residents alike. Tides Equities has been riding this wave of change, investing aggressively in hot secondary markets. The company has been one of the most active players in the residential market, with a prime focus on the Sun Belt region—a magnet for the population exodus from primary markets.
Since the beginning of this year, Tides has acquired four properties in metro Phoenix, in addition to two Dallas purchases. The company is generally targeting workforce housing properties as well as value-add opportunities in high-growth secondary markets. To learn more about Tides’ strategy, Multi-Housing News reached out to Co-Founder & Principal Sean Kia, who revealed some of the most—and less—attractive markets for multifamily investment today.
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What type of assets are you targeting?
Kia: We target well-located, workforce housing that is in striking distance to jobs, retail and night life. We also focus on affordability, ensuring that current demographics in a 1-to-3-mile radius of the subject property can afford our new post-renovated rents.
How did the pandemic influence your company’s investment strategy?
Kia: We saw a massive shift out of the traditional primary markets and into the secondary Sun Belt markets. People can no longer afford to pay 40 percent to 45 percent of their monthly income on rent, but rather want a more balanced quality of life where they can pay 25 percent to 30 percent and still have money for a car payment, restaurants and shopping. New residents are relocating to Texas, Arizona and Nevada by the tens of thousands annually.
In your opinion, which are currently the most attractive markets for multifamily investment and what is behind their allure?
Kia: Our top three markets are Phoenix, Las Vegas and Dallas, in that order. Rent, wage and population growth are among the top reasons why we like these markets. There are more qualified renters making more and more money that are moving to these markets that still want a nice place to live without having to stretch or dip into their savings.
Oppositely, which markets are less of a target for you at the moment and why?
Kia: The primary markets such as Los Angeles, San Francisco and New York all look less attractive to us than the secondary Sun Belt markets. In the primary markets, residents typically pay a much higher portion of their monthly income on rent and are frankly experiencing a lower quality of life as a result. Renters are simply fed up, and can still get the same city living in Dallas and Phoenix as those markets have been nicely developed throughout this cycle.
How are you tackling some of the biggest challenges the sector is facing, such as rising interest rates?
Kia: Rising interest rates is definitely an area we are monitoring closely. A big reason why value-add real estate is a popular asset class is that you have cash flow on day one. Once rates get to a certain point, that may no longer be the case, which will impact our ability to purchase assets in this current compressed cap rate environment.
What kind of apartments are residents most interested in today?
Kia: We continue to see higher demand for our renovated units as opposed to the classic units. Residents are willing to pay more for a nicer unit as long as the whole dollar to rent ratio is in line with average incomes in the area.
Are there any recent acquisitions that stand out within your portfolio?
Kia: Yes, we recently purchased the largest market-rate apartment community in the state of Arizona, which is 1,012 units. This asset was purchased off market, in a $255 million transaction. Tides Equities has rebranded this property as The Tides on 71st.
Is Tides planning on entering any new markets going forward?
Kia: Yes, we have recently been interested in the Austin market, as well as looking more eastward at markets in Florida and the Carolinas.
What are your predictions for the multifamily sector?
Kia: I believe it will be another record year in terms of volume in 2022 and, beyond that, I believe rent growth will taper off from the double digits to the mid-single digits, which will still allow us to experience strong returns over the next three to five years.