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With apologies to the urbanites, the suburbs are back. They went nowhere, of course, considering more Americans have lived in suburbs than cities since the 1970s. Yet many people accused the suburbs of being bland and monotonous, places where life and vibrancy faded into the manicured lawns. Maybe the burbs just needed a better press secretary.

Turns out, though, people love the suburbs and are growing more willing to say it. Axios called the suburbs “America’s surprise revival.” Bank of America called the U.S. a “suburban nation,” with as many as 45 percent of millennials expecting to buy homes there.

Bloomberg reported that the suburbs are becoming more diverse, and The New York Times declared that the “era of urban supremacy is over.”

With housing shortages and mortgage rates continuing to run high, prospective homeowners are remaining renters even as they relocate. Suburban multifamily housing continues its growth surge, particularly in the single-family and build-to-rent markets. So, what does this mean for multifamily real estate investors?

Though the buying climate continues to untangle itself, entrepreneurial investors are finding opportunities in the suburbs. Locations with stable or rising job markets, an influx of young families, and lagging development lag produce viable buying opportunities.

Smart investors who understand the submarkets and focus their vision locally can find worthwhile investments. Here’s how we’re scouting opportunities in the suburban multifamily market.

Why buying opportunities exist in multifamily housing

Though capital markets continue to challenge real estate investors, discerning buyers can find worthy properties. Interest rates and low inventory remain concerns for everyone, including institutional investors who either are storing capital or reallocating it toward investments. So we’re finding fewer investors in the market, which benefits entrepreneurial investors. 

With less competition for assets and interest rates maintaining their high cruising altitude, some prices have fallen over the past few years. We’re seeing interesting deals in multifamily housing, particularly for suburban properties that might need renovations.

Investors willing to evolve flagging properties for today’s demand could convert them into rent-growth offerings. For developers, suburban properties typically are easier to acquire land for, develop, and maintain. Developers also find the suburbs easier to scale (more on that soon). 

Of course, fewer deals reach the market today, so competition remains fierce for new product. However, entrepreneurial firms that conduct their due diligence can find deals as long as they know where to look.

Location matters in multifamily housing as well

Investors know that though 85 percent of apartments are in the suburbs, according to Real Page, not every place is booming. Successful investors analyze submarkets for population and demographic shifts, job growth, and amenities. They’re finding places to invest.

In suburban Chicago, for instance, some developers are converting unused office space into housing. The Philadelphia suburbs now ring the city with an hour-long driving radius that covers three states, and each suburb houses its own personality and flavor. As Philadelphia Magazine notes, an eastern Pennsylvania region known as the Lehigh Valley considers itself a de facto suburb of both Philadelphia and New York.

Some markets are growing faster than they can build property. Check out Indianapolis. Meanwhile, we’ve found places oversaturated with multifamily product, Austin, Texas, among them. The best buying and developing opportunities generally are in submarkets with tight inventory and few scheduled projects.

The Midwest presents some opportunities, particularly regarding rent growth, because it lacks new multifamily supply. But wherever investors look, they also must understand the new generation of renters.

Understanding the new multifamily market

As Hyojung Lee, assistant professor of housing and property management at Virginia Tech, told Axios, “We’ve always talked about millennials as urban people, living in apartments, using Uber and going out for brunch. But it turns out they’re not that cool anymore.”

They can be in the suburbs, which now have brunch along with many of the jobs, services, and conveniences that cities long claimed for themselves. As a result, millennials are trading high rents and cramped apartments for the spaces (indoors and out) that their grandparents built in the 1950s. We’re reviving terms like the “donut effect” and coining new terms like “Zoom Towns” to illustrate our transfer to the exurbs and suburbs. 

Of course, finances play a role. Millennials and other urban residents who feel trapped by high city rents and higher home prices choose instead to rent in the suburbs. Often, rents are more affordable, spaces are larger, and the kids have room to play.

Yet today’s suburban residents also seek to import aspects of their urban lifestyles. They want properties with built-in recreation opportunities (such as fitness centers and yoga studios), public spaces for co-working and socializing, and access to dining, shopping, and entertainment. Multifamily properties with these options command higher occupancy and rents.

Ultimately, renters want a home, even if they don’t own it. That desire informs a growing trend in multifamily housing.

Consider the build-to-rent model

Though certainly not new, the single-family rental market is booming as young families and retiring downsizers have discovered its advantages. In 2023 MZ Capital Partners purchased the Residences at Devanshire, an 87-home community in West Knoxville, Tennessee, that has generated robust demand. We’re looking to invest in more single-family rental properties while other developers are rushing into build-to-rent.

Build-to-rent communities, composed entirely of single-family rental homes, fill a needed space in the suburban market. Residents marry the benefits of renting and the single-family lifestyle without having to replace a roof. Developers and institutional investors benefit from creating scale, which is more difficult in the single-family housing market. Entrepreneurial firms should consider pursuing this market as well.

The National Association of Realtors concluded that build-to-rent is “transforming” the multifamily housing landscape by uniquely addressing the national housing shortage. According to CBRE, build-to-rent is a growth sector for many reasons we’ve addressed: suburban demand, millennial interest, and baby-boomer downsizing. Even with high construction costs, build-to-rent forecasts well because of its still-limited supply.

Multifamily housing remains a healthy long-term investment, even through the parade of economic trials we’ve seen in the past few years. And with the suburbs cool again, investors need to be looking there. It’s OK to like the suburbs and a smart idea to consider investing in them.

Michael H. Zaransky is the founder and managing principal of MZ Capital Partners in Northbrook, Illinois. Founded in 2005, the company deals in multifamily properties.

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