- THE SYNDICATE
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- #4 - The Market - SFR and Multi Family
Hello GPs, LPs and JVs,
We took some time away to do some networking in the multi family operator space and it was well worth it. We were able to get an insider’s perspective of the operational capabilities of some of the best operators in the country and to network with some of the general partners and sponsors in their network. As we look to add our first multi family offering to the portfolio, we definitely appreciated the insight of all of the folks in the network who offered their expertise. In today’s post, we will get back to explaining our perspective of the DC Metro MSA (Metropolitan Statistical Area) and why we think there is such an opportunity to create wealth right in our own backyard with both SFR and Multi Family.
As we prepare to launch the fund and begin our first capital raise, I have had several discussions with more seasoned operators fund managers and the feedback from them has been pretty consistent with regards to raising capital:
1. Describe the Market
2. Describe the Opportunity
As we detail the DC real estate market to potential investors, it is helpful to remind them of the objectives of our first fund:
1. Acquire single family homes in the best school districts
2. Perform value add work and homogenize the properties to increase equity
3. Rent them to qualified tenants and establish cash flow
4. Distribute monthly dividends
5. Consolidate the portfolio and refinance when interest rates drop
6. Repeat steps 1-5
With that said, what makes the DC market so unique?
THE GEOGRAPHY
We have all heard the term “DMV” or (DC, Maryland, Virginia) used to refer to this area by locals and outsides alike. For most real estate professionals, this includes the areas in the following counties: Alexandria City, VA; Arlington, VA; Fairfax, VA; Falls Church City, VA; Frederick, MD; Loudoun, VA; Montgomery, MD; Prince Georges, MD; Washington, DC.
Maryland-West Virginia Panhandle – Allegany, MD; Berkeley, WV; Garrett, MD; Grant, WV; Hampshire, WV; Hardy, WV; Jefferson, WV; Mineral, WV; Morgan, WV; Pendleton, WV; Washington, MD;
North Central Virginia – Caroline, VA; Clarke, VA; Culpeper, VA; Fauquier, VA; Frederick, VA; Fredericksburg City, VA; King George, VA; Madison, VA; Manassas City, VA; Orange, VA; Page, VA; Prince William, VA; Rappahannock, VA; Shenandoah, VA; Spotsylvania, VA; Stafford, VA; Warren, VA; Winchester City, VA;
Southern Maryland – Calvert, MD; Charles, MD; Saint Marys, MD;
For us real estate folks, market data is often reviewed at the MSA (Metropolitan Statistical Area) level or the Submarket level. There are 387 MSAs in the United States, with the DC Metro MSA being ranked as the 7th largest in the county (see rankings here). For the purposes of this conversation, we will limit our focus to the 9 counties listed below:
The most populous counties in the DC Metro MSA are as follows:
County | 2020 Census | 2010 Census | Change | Area | Density |
|---|---|---|---|---|---|
1,150,309 | 1,081,726 | +6.34% | 391 sq mi (1,010 km2) | 2,942/sq mi (1,136/km2) | |
1,062,061 | 971,777 | +9.29% | 491 sq mi (1,270 km2) | 2,163/sq mi (835/km2) | |
967,201 | 863,420 | +12.02% | 483 sq mi (1,250 km2) | 2,002/sq mi (773/km2) | |
689,545 | 601,723 | +14.60% | 61.05 sq mi (158.1 km2) | 11,295/sq mi (4,361/km2) | |
482,204 | 402,002 | +19.95% | 336 sq mi (870 km2) | 1,435/sq mi (554/km2) | |
420,959 | 312,311 | +34.79% | 516 sq mi (1,340 km2) | 816/sq mi (315/km2) | |
271,717 | 233,385 | +16.42% | 660 sq mi (1,700 km2) | 412/sq mi (159/km2) | |
238,643 | 207,627 | +14.94% | 26 sq mi (67 km2) | 9,179/sq mi (3,544/km2) | |
166,617 | 146,551 | +13.69% | 458 sq mi (1,190 km2) | 364/sq mi (140/km2) | |
159,467 | 139,966 | +13.93% | 14.93 sq mi (38.7 km2) | 10,681/sq mi (4,124/km2) |
Many of the counties in this table have grown significantly over the last 10 years. This is great news for our investment criteria concerning the path of progress. People are moving into the area to live and work.
THE REAL ESTATE
According to Corelogic, the DC Metro MSA leads the way in SFR rent increases from 2023 to 2024.
This can be viewed as a positive OR a negative depending on which side of the argument you are on. From the renter’s perspective, DC continues to be one of the most expensive places to live in the entire country.
Single-family rental prices increased 2.9% year over year in June 2024, which is equal to gains seen last month.
The Washington D.C. metro area led the U.S. for annual rent growth at 6.5%. The other four rental markets in the top five saw monthly rental costs increase over 5%.
Rental prices for low-end properties were up 1.9% compared to high-end properties where rental prices increased 3.1% year over year.
Here are the average single family home prices for each of the counties in the DC Metro MSA:
Date Range: 1/1/24 - 8/1/24
County | AVG Units sold per month | AVG Sale Price |
|---|---|---|
Alexandria, VA | 174.4 | $786,769 |
Arlington, VA | 195.6 | $900,767 |
Loudoun, VA | 415 | $831,123 |
Fairfax, VA | 1014.7 | $859,183 |
Falls Church, VA | 12 | $1,091,110 |
Washington, DC | 551.7 | $881,761 |
Prince Georges, MD | 727.4 | $450,420 |
Montgomery, MD | 812.3 | $768,931 |
Source: Bright MLS
Here are the same counties with the public school districts ranked
County | AVG Units sold per month | AVG Sale Price | Public School District Rank within the state | Public School District Overall Grade |
|---|---|---|---|---|
Alexandria, VA | 174.4 | $786,769 | Not ranked | B- |
Arlington, VA | 195.6 | $900,767 | 2 | A+ |
Loudoun, VA | 415 | $831,123 | 4 | A |
Fairfax, VA | 1014.7 | $859,183 | 6 | A |
Falls Church, VA | 12 | $1,091,110 | 1 | A+ |
Washington, DC | 551.7 | $881,761 | Not Ranked | B |
Prince Georges, MD | 727.4 | $450,420 | Not ranked | C |
Montgomery, MD | 812.3 | $768,931 | 2 | A |
Source: Niche - VA Public School Rankings
Source: Niche - MD Public School Rankings
Source: Niche - DC Public School Grade
Source: Niche - MOCO Public School Grade
Source: Niche - Arlington Public School Grade
Source: Niche - Falls Church Public School Grade
Source: Niche - Alexandria Public School Grade
Source: Niche - Fairfax Public School Grade
Source: Niche - Loudoun Public School Grade
The Washington, D.C. region has one of the highest annual rent growth rates among the nation's largest markets. A combination of returning demand and a relatively moderate supply pipeline has helped rents grow by about 3.8% annually, up from 1.7% annual growth a year ago, and far above the national average of 1.3%.
Source: CoStar Washington DC MultimFamily Report
THE PEOPLE
We look to the US Census as the source of truth for demographic information, and after reviewing the most recent 2020 census data, we have identified some pretty interesting trends when compared to the 2010 data. In a nutshell, the DC Metro MSA is becoming more and more diverse with each passing year. Some of the reports that we use to better understand demographics and the migration patterns of people are:
State population totals and population changes
State and County Diversity Index
State to State Migration Flows
ECONOMICS, CULTURE, PATH OF PROGRESS
Home to the Federal Government
The Washington metropolitan area has ranked as the highest-educated metropolitan area in the nation for four decades.[34]
One of the largest diplomatic communities in the world
Home to 186 embassies
The Washington, D.C. region benefits from being the nation's capital as it typically brings stability within the employment sector and attracts talent from all over the country. After the slower-than-average recovery from the disruption of the coronavirus pandemic, the D.C. region has turned a corner, and job growth is in line with national numbers. Job growth is projected to be 1.1% in 2024.
Washington-area employers added about 28,900 jobs on a net basis between May 2023 and May 2024, a 0.9% increase and one of the highest monthly increases in the last two years. That brought total employment in the market to 3.4 million jobs, up about 48,000 from the prepandemic peak in February 2020.
Source: CoStar Washington DC MultimFamily Report
Primary Industries
Biotechnology
Federal State and Local Government
Defense Contracting
Hospitality
Mass Media
Telecom
Tourism
Major Transit Includes:
Washington Dulles International Airport (IAD)
Ronald Reagan Airport (DCA)
Baltimore Washington International Airport (BWI)
Washington Metro (WMATA)
MARC Train
Amtrak
Virginia Railway Express
The Washington metro area is experiencing one of its largest apartment inventory expansions on record. Developers delivered 15,000 new units in the last 12 months, marking the fifth consecutive year with more than 12,000 new units added. Approximately 23,000 units are underway, down from the peak of nearly 34,000 in early 2023
Source: CoStar Washington DC MultimFamily Report
And people have jobs…….good ones
IN CLOSING
YES, there is a lot of data here. With that said, it does not scratch the surface of the amount of data that we had to review to make sure that the DC Metro MSA is a good opportunity for our first fund. We are convinced that it is. The nation’s capital has been and always will be a conservative place (and we are not talking about politics). A melting pot of locals and expats from all over the world, who are here for various reasons makes for a very interesting market, a very diverse market and a very lucrative market.
In closing, we would like to reiterate our dedication to bringing our LPs a first class platform to invest on their own terms.
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v/r,
Michael Gillespie
SEVILLE Capital Partners
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