The multifamily market is seeing a move toward better value assets as investors search for better returns. Class A communities have seen a drop in demand from investors and end users alike, as prices have risen lowering returns. Buyers have begun to adjust their investments as they feel there are better returns in the B and C asset classes. Older properties have proven themselves to be more or less recession-proof, whereas newer properties can easily become a liability under the same economic conditions due to higher rental rates and expenses due to additional amenities. Class A assets are usually located in prime communities therefore demanding higher rents than their counterparts, but if demand should slip or vacancies go up, the NOI will go down. Also renters start getting priced out in a changing economy, so investors will find returns with Class B and C assets will increase as they are hit less in a down economy. The cost for construction has also seen an upward shift over the last few years so building Class A assets has become a bit of an issue. They usually come with a higher tax bill as well. According to the Wall Street Journal Class A construction is at a 7 year peak so we may run into an oversupply shortly.
Class B & C properties are attracting a wide demographic, from working class individuals to millennials entering the market to downsizing baby boomers. They tend to offer residents the most bang for their buck, and are attractive to more renters in a down economy. The typical Class B/C properties are around 15 to 25 years of age, and are located in desirable buildings in well-established middle income neighborhoods. Class B and C properties allow real estate investors to enjoy a significant lift in NOI by making small property improvements. Examples of these value adds include putting in stainless steel appliances, new cabinets, communal clubhouses, adding dog parks, laundry facilities in the unit and offering community events. These upgrades to B and C apartments can be relatively inexpensive to implement, yet can generate higher rents, leading to rapid ROI growth.
In 2017 the Greater Dayton Market saw 1,094 new units delivered primarily in the downtown, Fairborn/Huber Heights and Centerville/Miamisburg Areas. Occupancy ended the year at 95.3% down just .4% from 2016’s occupancy rate of 95.7%. The net absorption in 2017 was 114 unites. There are currently 1,676 units under construction. The Beavercreek/Bellbrook submarket is by far the most affluent in Dayton, largely thanks to its proximity to high paying jobs at Wright Patterson Air Force Base, thus commanding substantially higher rents than the rest of the market. The second most expensive submarket is the Centerville/Springboro area.