A Bet On Suburban Apartments

Atlanta Business Chronicle
By Douglas Sams
January 11, 2013

The past year marked big bets on the demand within Atlanta’s high-end apartment sector, including three new Midtown towers and several acquisitions that left some investors concerned about over-exuberance in the market.

Norman Radow didn’t take part in the class A intown apartment surge that drew big institutional players including Northwestern Mutual Life Insurance Co., MetLife, and condo and office tower developers such as Novare Group and Hines.

Radow, a real estate veteran who gained attention on Wall Street for turning around failed real estate projects for giants such as Lehman
Bros., believes this is the year for investors and developers of suburban, working-class apartments.

As always, the bet depends on job growth, especially in metro Atlanta.

The region’s unemployment rate fell to 8 percent in November, down two-tenths of a percentage point from October, according to the Georgia Department of Labor. But hiring hasn’t picked up enough for many investors, commercial real estate executives said.

Radow said he sees job growth around and outside Atlanta’s Perimeter.

“It’s those warehousing and distribution jobs such as Kraft Food in Union City and Caterpillar that’s supposed to bring all the new suppliers outside of Athens,” said Radow, whose The RADCO Cos. is based in Atlanta.

“You’ve also got the Port of Savannah that’s helping to drive these nodes of workforce jobs for truckers, shipping clerks, manufacturing workers,” he said.

RADCO has recently raised $31 million from wealthy investors. Many within the class B apartment sector are seeking cash-on-cash returns from 12 percent to 15 percent, and it helps that the properties can be bought at steep discounts — sometimes more than 30 percent — from the peak of a few years ago.

The suburban apartments have suffered high vacancy and falling rents since early 2007. Rents did not bounce back as quickly as the more expensive intown multifamily markets, where developers bet on demand from Generation Y workers who wanted to live closer to the city.

But that’s changing.

Rents across the class B apartment sector are up anywhere from almost 5 percent to 7 percent throughout metro Atlanta, according to market data. Global real estate brokerage giant CBRE Inc. projects substantial rent growth, “and a lot of that is focused in class B,” said Brad Simmel, a vice president of the company’s private capital group in Atlanta. After acquiring these properties at a discount, Radow then brings his turnaround expertise to the deals, investing in renovations and other upgrades to rekindle renter demand and raise the complexes’ value.

RADCO has recently expanded its Atlanta portfolio to 16 properties with a value close to $180 million. In December, the company completed seven acquisitions in the Atlanta market, increasing its portfolio to 3,000 units by adding projects in Norcross, Fairburn, Conyers, Lawrenceville and other suburban areas.

It’s a departure from the job Radow was doing between 2007 and 2009, when he was helping Lehman and other big clients rescue almost $2 billion in failing real estate projects.

“They called it the workout business; I preferred to call it a turnaround,” Radow said. “We handled the biggest messes. But, eventually everyone got into workouts. Then lenders got timid. They stopped wanting to add value.”

Radow’s no longer parachuting in to save clients from $200 million and $300 million projects gone awry. Now he travels across the United States and internationally for investment partners.

“This time we’re building this from our own accounts,” he said.