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Every Friday, join us as we dive into the latest in real estate multifamily with David Moghavem, Head of East Coast Acquisitions at Trion Properties. David invites top experts who know the ins, outs, and trends shaping the real estate multifamily market across the nation!
Whether you’re a seasoned investor or just curious about where the next big opportunity might be, Deal Flow Friday brings you the weekly inside scoop on what’s hot, what’s not, and what to watch for in today’s ever-evolving real estate scene.
David Moghavem (01:57)
All right, everyone, welcome to another episode of Deal Flow Friday. I'm your host, David Mogavum. And today we got Brooks Kolkwit. Brooks, how you doing,
Brooks Colquitt (02:09)
Good David, good to hear from you.
David Moghavem (02:11)
Good to hear from you as well. Brooks, I gotta tell the audience, you are the first one to say yes on the pod due to technical difficulties that didn't work out, but we have you now and we're gonna take a deep dive into Atlanta, which is one of my favorite markets right now. It's a little out of favor, but I think it's coming back and Brooks is gonna tell you exactly why and this should be a fun one.
Brooks Colquitt (02:37)
Looking forward to it.
David Moghavem (02:38)
Yeah. And first of all, you know, a little quick intro on Brooks. We closed the deal end of last year in Atlanta and Brooks just joined the Newmark office as a senior managing director. Before that, he was at Cushman and Wakefield for how long? Ten years? Eight and a half years. And you guys did over 60,000 apartment units, four billion in sales volume and
Brooks Colquitt (02:57)
uh... eight and a half
David Moghavem (03:07)
Now you're in the Newmark shop and looking to do more business. How's it been on Newmark, by the way?
Brooks Colquitt (03:13)
It's been good. So different model at Kishman. We were a very large team that had a revenue sharing agreement where basically everything went in a bucket. We had institutional capabilities behind us just being an international company. Newmark has the same advantages. So it's an international company. It's got plenty of resources, plenty of people. The difference is it's more of a traditional brokerage model where
you control your state, you control your region, and you control your clients. And for me at my age, I felt like that was a better model just to get closer with my clients, be able to do business with people I wanna do business with. not either model is wrong, not either model is right. It's either right or wrong for the right person. For me, this is better fit. So all good.
David Moghavem (04:01)
Yeah. And, you know, I feel like in brokerage, you're establishing yourself, you're creating your relationships and under the day, the Jersey is just the Jersey and the player is the player. And, you know, whether it's Newmark, Cushman or wherever, it's always a pleasure working with you. And last deal was, it was awesome to work with you and looking to do more.
Brooks Colquitt (04:24)
Absolutely.
David Moghavem (04:25)
let's dive in. mean, the first question, obviously I want to hear, you know, the 30,000 foot overview. Why Atlanta?
Brooks Colquitt (04:33)
Yeah, sure. So I actually was born and raised in Atlanta. I spent a brief time in Charlotte, but really 25 plus years of my life have been spent in the city. And it's pretty cool to watch the growth. one little small stat is since 1990, so the last 35 years, Atlanta has grown almost 300%. So the population was around 2 million. It's now almost six and a half.
And I've been able to watch that really happen real time. Just for example, I was born and raised in Peachtree Corners, which is a small suburb of Atlanta, about 25 minutes north of the city. And when I was born, there was one public school, there was one office building, there was a couple of small gas stations. There's now two malls, four different public schools, four different office developments, tons of capital, institutional capital.
in the marketplace and that's just one small neighborhood. But it's a good microcosm to show proof of how Atlanta has grown. In terms of why, number one, it's a right to work state, meaning there's no unions versus like a New York City or sometimes even in Chicago, Los Angeles. It's business friendly, meaning that a lot of these corporations like Coca-Cola, like Delta,
they get tax incentives for growing their business here. And over the course of the last 30 years, that's why you've seen a lot of these Fortune 500 companies pour into this marketplace. And the biggest driver would be the airport. It's the world's largest airport. More people come through, Hartsville Jackson, than the other airport in the United States and even in the world. And because of that, it's easy for businesses from an infrastructure perspective to have outposts here or even
headquarters here and from a multifamily perspective, people can direct fly from anywhere internationally and domestically into Atlanta. So it makes it really accessible just to come check your properties and come to Atlanta to look at a sub market, et cetera.
David Moghavem (06:47)
would add to that. the type of companies that are coming here, you could tell it's business friendly actually was in an Uber kind of picking an Uber driver's brain on Atlanta. And he said how the film industry, I guess, gives an incentive. If you do it in Georgia and show like that it's a Georgia film, you get like a tax credit. I wasn't sure exactly what it but like
Little tidbits like that is what drives employers to come and put their base in Georgia and in Atlanta particularly.
Brooks Colquitt (07:25)
Yeah, music and film are huge. I don't know the exact stat, but either Atlanta is second or third in the country from a film production standpoint. And I'm sure a lot of your viewers watch Netflix or XYZ show and you'll notice at the end, it'll say filmed in Georgia. And that's where the tax credit situation comes into play. And in 35 years ago, that was non-existent. I mean, literally non-existent and it's only growing. And so
David Moghavem (07:42)
Mm-hmm.
Brooks Colquitt (07:54)
You have entertainment, film, and music, and not to mention all the Fortune 500 companies, but it's always been a dynamic city. And just real quick, it also has always been the largest city in the Southeast and it will continue to remain that way. If you look at County United States, New York is the largest city in the Northeast. Atlanta is the New York of the South. It's very diverse, tons of population. The net migration is still positive.
So long-winded way of saying, Elena will always be kind of the capital of the Southeast.
David Moghavem (08:28)
Yeah, and you know, one of the business plans that when we were buying our deal together is also the logistic and distribution employers in the southern part of Atlanta. think the connection it has to Port of Savannah and some of that growth has been another, you know, we haven't even mentioned logistics and distribution. So I think that's important to talk about as well. Such a diverse
employment and economic drivers, where it's not just factors focused on one, but many other aspects in industries.
Brooks Colquitt (09:03)
Correct. Yeah. And as you mentioned that, if you look at a map of Atlanta, which we'll cover later in this, but you have I-85, I-75 and I-20 all that merge in downtown Atlanta. And then you have I-16, which comes from the Port of Savannah. And so you have four major thoroughfares that get to any city in the Southeast and any city on the East coast with the airport being here. so you have logistics, manufacturing.
is an absolute hub. And a lot of that logistics and manufacturing is south of the city. It's around the airport. It's basically McDonough North. There is some on the north side as well, but a lot of your industrial and manufacturing will be south of the city.
David Moghavem (09:47)
Yeah, so let's go into it. Let's pull up a map. I know the best way to talk about Atlanta. You gave a great analogy with the martini glass as much as I love martinis. I love also analogies to martinis to understand markets. So why don't you give the audience a little bit about how to break down Atlanta geographically?
Brooks Colquitt (10:11)
For sure. So as you see in this map, there's highway I-20 and that goes east-west or west-east through the city. That essentially separates the north from the south in terms of the city of Atlanta. Along highway I-20, you have the east and western parts which have their own benefits and their own job stories, but we're staying high level in this conversation. anyways, so north Atlanta,
has been identified as the Martini glass. And North Atlanta, you zone in on the map, Highway 400, which starts really in Buckhead, but North Atlanta, Buckhead, it goes straight north and south. And a lot of people that live north of the city use that road to come in and out of work. It's extremely congested during the
David Moghavem (11:08)
Mm-hmm.
Brooks Colquitt (11:09)
the high traffic hours, but that is your stem of the martini glass. But basically that center of the martini glass, your stem, that's going to have your
highest per capita income. It's going to have some of your best public schools. That's going to be the highest rents in the city outside of your core and midtown and Buckhead. basically you can't go wrong from a demographic perspective. You can go wrong from an acquisition perspective just because it's in that stem does not make every deal a good deal. You know price is the
David Moghavem (11:48)
Mm-hmm.
Brooks Colquitt (11:50)
determination of whether or not it's a good deal and then the execution of the business plan. But in general, you will never see demographics that are not in a positive light. The demand to be in that area for capital is high. It just has a lot going for it. And as we continue up the martini glass, you then have the actual glass. And that is a large circle anywhere north of I-20.
David Moghavem (12:14)
Mm-hmm.
Brooks Colquitt (12:20)
And so you can kind of just take a circle around 285 and go up to Quartersville. That also is within the glass. Now each side of the martini glass has its pros and cons. again, just because it's within this metric does not mean it's a good deal. But in general, you'll see solid public schools, you'll see high demographics.
David Moghavem (12:26)
Yep.
Brooks Colquitt (12:47)
Yeah, plenty of jobs just because a lot of people commute into the city in the bucket in the Sandy Springs. But a lot of capital flowed into North Atlanta. You know, the one negative with North Atlanta is when the market was red hot and debt was essentially free, the highest price per doors were sold in this martini glass. And so
When we're in a normal market condition, price per door doesn't really have that much of an effect on the actual transaction. It's only when you're buying it at the wrong time. And so some of our clients are having issues just with basis. They're trying to refinance their loan. It has nothing to do with the performance of the property. That's one thing I want to stress. It's just simply what they paid and what the cost of debt is today versus then.
David Moghavem (13:28)
Mm-hmm.
Brooks Colquitt (13:38)
But in general, where you want to be in Atlanta from a demographic perspective.
David Moghavem (13:44)
Yeah, one thing about Atlanta is with values dropping nationwide tremendously, we look at trended exits and see how they were compared to peak. And I would say like in North Atlanta, you're well inside of peak when you're on your trended exits because of how high those values ran up. My question to you.
is in your opinion, do you think we'll get back to that pricing in the next three to five years from a price per door perspective? Obviously not from a cap rate perspective, but just like that type of basis, do you think there's a path to get there? Or do you think those price per pounds just ran up so high that it might take a little bit longer?
Brooks Colquitt (14:29)
I would say in general, yes, we are strong believer that it will get back to that pricing. There obviously are examples where it might be a long time. But I would say for the most part, yes. And there's math behind it. It's not just speak or Atlanta reached peak supply last summer. So the summer of 2024 and the projected number of units under construction coming online is projected to go down each month.
David Moghavem (14:38)
Mm-hmm.
Brooks Colquitt (14:58)
in just a few stats. So in 2022, 26,000 units, 23,000, 26,000 units, 24,000, 25,000 units or 23,000. I think it was exact to that. This year it goes down to 15,000 and then next year it goes down to 8,000 and the year after that is projected to go to 4,000. That should change, but you get a general sense of how much construction is dropping and yet the net migration in Atlanta is still positive.
Population is still growing. Job growth is still there. The same Fortune 500 companies that were there three years ago are still there now. In fact, more are coming. And so because there is a lack of supply and demand is increasing, and a lot of that demand goes onto the north side of Atlanta in terms of where they live and where they work, we do see values going up. Whether that's one year or five years, that I don't know. But I do think we're...
at the bottom and if not at the bottom, we're darn close.
David Moghavem (16:00)
Yeah, definitely. I think part of that light at the end of the tunnel is kind of what you said, there was peak supply, whereas 20,000 plus units a year. But you're also seeing peak demand and peak absorption trailing that number. I think there was over 20,000 units absorbed in the same 12 months. the fact that absorption is still kind of trailing, but nearby of a peak supply is a good indication of
how healthy the market is from a renter's standpoint.
Brooks Colquitt (16:32)
Correct. Yep, correct. And you'll see those stats are OM as well. And that's one of the benefits of North Atlanta is performance. So, and we'll get to the south part of the city and east and west. And again, every deal is different, but even at those high basis, basis that were purchased, the performance has still been relatively strong. You're not seeing.
the 12 % rent growth that we saw in 22 and 23 or 21 and 22. overall, occupancies are healthy. The renters are paying rent on time. it's being repetitive, but essentially you see good performance historically on the North side, and I think we'll see it in the future.
David Moghavem (17:21)
let's move down to, I guess, the bottom, the base of the martini glass and kind of talk about some of the pros and cons there as well.
Brooks Colquitt (17:31)
Yeah, so this is something that I've spent a lot of time south of I-20 in terms of just properties that we've sold. This is a very transactional side of Atlanta. A lot of the equity here is not as institutional as you would say on the north side. A lot of those institutions are REITs and they're 10, 15, 20 year holders where it's hard to find a capitalization event. On the south side,
There are institutions that own here, but in general, it's more private in nature and therefore it becomes more transactional. And when the times are good, you can make a lot of money here because it's very easy to liquidate. And from a performance perspective, just like on the North side, there are pockets that are not as good and then there's pockets that are really good.
And so you still have to be careful of where you buy. Just for example, know, McDonough is looked at as a very positive market south of I-20. As David's zooming in there. Right now, McDonough is overbuilt. There was a lot of supply because of all the demand and all the positivity that was in that market. Developers flooded it. However, this is just temporary.
There's no issue with jobs. There's no issues with population growth. Right now, there is an issue with rent growth just because of their supply, but high demographics, very desirable sub pocket. And as you go north of north, the Northwest, these sub markets benefit off the growth of McDonough. So that's like Stockbridge, that would be Jonesboro. Those neighborhoods are
not as quote unquote great or high dollar incomes that you see in McDonough, but they're still very healthy markets. They also in certain pockets of these areas haven't seen the strong rent growth like what we saw in 21, 22 because of supply McDonough does affect these markets. But in return as a buyer
buyers are able to pick up deals at a depressed basis. So, yeah, for example, like deals in this pocket, newer construction, we're trading in the 250, the 260 a door range, you can buy a deal today for 200. And again, the fundamentals haven't changed. The debt has, the pricing has, the rent growth has, but that's why we think it's a really, really, really good time to buy because a lot of people...
David Moghavem (20:04)
Mm-hmm.
Brooks Colquitt (20:19)
are not. But when everyone was buying three years ago is when probably people shouldn't have been buying. And so we think it's a great time to enter that market.
David Moghavem (20:31)
Yeah, and I think there's a difference between a maker sub market and a trader sub market. And there's not necessarily like a good or a bad. Kind of like what you said, there's these boom bust pockets that are more transactional, more liquid. And it's not about timing, but it's just about being a little bit more risk averse, maybe going into those, because you know you have the liquidity and you just
if you're covering and downside protecting, you can do really well there. Whether as on a maker market, if you're going long term and you have conviction, you might stretch because you're holding this in 10, 15 years. So I think what Atlanta has is an investment thesis for both. Whether it's a good demo, high barrier to entry pocket.
Brooks Colquitt (21:21)
Yeah.
David Moghavem (21:25)
or maybe something that's a little bit more commodity product workforce. Atlanta has it for both and there's both benefits to either thesis.
Brooks Colquitt (21:36)
Yes, yeah, absolutely. in general, and I know I'm a broker, and so we're obviously selling properties and we have properties on the market right now. But I truly believe if you just look at simple math, pricing is down 30 to 35 percent from where it was in 2022. All those stats I just said have not changed. Net migration positive, population positive, but the pricing is way down and debt is coming in. It might fluctuate.
David Moghavem (21:57)
Mm-hmm.
Brooks Colquitt (22:05)
you know, here and there, but in general, it's cheaper than where it was 12 months ago. so long went away of saying, whether you're buying on the North, whether you're buying in the East, whether you're buying in the West, right now is a good time to put Capital into Atlanta. And we're seeing that. Our bid matrixes last year towards the end of last year were pretty slim in comparison to where they were in 2022. This year to start, we have seen Capital come back to Atlanta. And I think it's because of all those
stats that we just mentioned, because of the compression of value and because the city is so dynamic. So you summarize well, whether you're buying North, South, East or West, there's all ways to make the deals work. You just want to make sure that you're buying the right property.
David Moghavem (22:50)
Yeah, I remember when you came up to me at NMHC this year and you're like, David, I have good news and bad news. The good news is that Atlanta, everyone is now talking about it because pricing is now reflecting of it to come back in. The bad news is it's going to get more competitive for you and for us to do our next deal together.
I guess taking a step back a bit, he talks about how pricing is down 30, 35%.
Zerp era, zero interest rate period versus now, what were cap rates before for core, core plus versus value add before versus now
Brooks Colquitt (23:31)
there was no risk spectrum back in 2022. Essentially, everything was a three and a half cap. It could have been a deal, 1970s on the South side. It could have been something core and midtown Atlanta high rise. Pretty much everything was a three and a half cap. now, granted, debt was three and a half. And so it was around neutral leverage, plus or minus.
A lot of that debt though at the time was bridge. And so it turned out to be extreme negative leverage. But long went away of saying plus or minus three and a half. You would see some deals trade at four and a quarter if it didn't have as much rent growth, but between three and a half and four and a quarter. Now you're seeing cap rates for core deals and the upper fours still. I would say for your kind of workforce housing.
or your core plus value add. So something that's in a core location that's a value add is around a five. And then your workforce housing value add is around five and a quarter. And then your true workforce kind of, you know, maybe small unit calendar in a rough location, that's closer to a six. But we're not really seeing many transactions at all at a six. It's in the upper fours to mid fives.
David Moghavem (24:55)
Yeah, I guess once you're pricing at a six, it's really that's where you just start to see the bid ask spread, right? That's where you're starting to see those groups not meeting the market, trying to find alternative capital to save the deal. Are you starting to see that change from the value add side of where you're BOVing a deal and maybe sellers are starting to capitulate and they're starting to say, okay.
We're in 2025. This is the year where we said things will be better and we're here now. We got to meet the market or are you still seeing the bid as spread continue?
Brooks Colquitt (25:32)
It's painful to say, I would say we're still seeing it continue. There are circumstances and deals that you see on the market today are normally deals that they're going to meet the market. They're going to transact. Last year and the year before that, especially 2023, so many deals were pulled. mean, 50 to 60 % of the deals that hit the market were never traded. Last year is probably 50%. This year, I think you'll see a much higher hit ratio because of everything you just said.
David Moghavem (25:36)
Mm-hmm.
Brooks Colquitt (26:02)
However, the amount of BOVs that we've done, just for example, I started at Newmark two and a half months ago and me and my team, we've done 72 BOVs in Atlanta in two and a half months and we have two deals on the market. And so that's an example of our hit ratio from a sales perspective is still low, but those two deals we have in the market will transact.
David Moghavem (26:28)
Yup.
Brooks Colquitt (26:28)
And
I don't know what it's going to take in order to get, say, half of those 72 on the market. That was kind of our old hit ratio. It's likely time. The more time that goes by, sometimes it's a good thing for sellers, but more often than not, it's not. And so next year, we're hoping that changes. But it's a very fluid situation.
David Moghavem (26:50)
I think the BOV activity is groups trying to understand pricing in such a volatile time, right? And trying to get real time feedback on their deals on the market. Does that translate to sales? Who knows? I think at some time in the next maybe three years, I don't see rates dropping, you know, precipitously anytime soon. So I think
We are in a new reality and I think that might start translating to people just starting to turn those BOVs into marketed opportunities. But only time will tell. Brooks, we gotta address the elephant in the room about one thing that I think it's not fair to say has changed since the peak because I think it was going on in peak, but bad debt evictions. This is to me,
why capital has been scared to come into Atlanta, but it's also why we're seeing opportunity So talk to us about the bad debt story, where it started, where it's at today, and kind of looking forward how it's gonna look.
Brooks Colquitt (28:01)
Sure, yeah. So I would say at its height, which would have been, call it late fall of 21. So a solid kind of year after COVID or really when COVID came to an end, at least in Georgia, we were probably 18 % delinquent as a market as a whole. Now today, I haven't like the latest stat, end of last year, we're more like 7%.
And that's just as a whole, right? So every sub market is different, but it's cut 11 % and it's dropping. So the one thing I can say for sure is we are not seeing rent griff yet. That will, in our opinion, start this summer and really hit hard next summer because that dropped supply. But I can definitively say we are seeing a drop in bad debt. And that's given a lot of buyers confidence. It's given people
David Moghavem (28:34)
Mm-hmm.
Brooks Colquitt (28:58)
You know, they were hopeless in terms of, okay, I see I can stabilize this deal at an eight cap, but can I? I can't get these people out. People are now able to do that. And what's helped is counties are helping out landlords. Fulton County signed a new writ law basically saying any off-duty officer can evict a tenant as long as that writ is received by the landlord. What happened was, when off-duty officers came in and evicted tenants,
everyone else would skip that hadn't paid rent. And so you saw a massive increase in evictions, which also increased bad debt write-offs, but in the end, it's much healthier for the marketplace. So I would say by the end of this year, you'll see it on Coastal or Yardy Matrix, whatever third-party data report you see, that bad debt figure will be back down into the four-ish range. And historically, Atlanta always was sub-two.
know, zero to 2%, depending on the sub-market. We will get there, probably be at end of next year, but we're much better from an operations standpoint than where we were three years ago.
David Moghavem (30:06)
Yeah, I would add to that. You know, we track a lot of markets and what we're finding is Atlanta's problem with bad debt isn't unique at this time. We're starting to see the delinquency trickle into where you were before in Charlotte, in other major metros, even in Florida. Now, Atlanta was a little bit more backlogged with, you know, the court dates and getting the writs, but they
The bottom has already been seen there and I think you're already seeing such drastic improvements where these other markets, even Denver, are just getting wind of it right now and they're just dealing with it now. people have this stigma about Atlanta and operations and it's real, it's still hard. If you're not on top of it, you could get crushed. That's why us at Tryon, we self-manage and we're bullish on Atlanta because
We have a firm grasp on operations, but it's a problem that is not unique to Atlanta at this point.
Brooks Colquitt (31:14)
It's interesting. And we've heard similar feedback from clients. And again, that's why our bid sheets have increased just because they're like, you know what, Atlanta has not solved the issue, but come very close to fully solving the issue. It's in process. And, you know, if your bad debt is 4%, that's a very reasonable number to overcome versus, you know, 20, 25, 30, 35%, like we were seeing on some AR reports.
And that still is on some properties, but there's two common themes to those properties. Number one, Bridgeland. Number two, sponsor out of capital. And you put that together, they're not turning units. The management company has an account payable balance north of 500 grand. And those properties are now being foreclosed on by lenders. They're being sold by that current sponsor. They're being reworked from an equity position where someone with capital comes in. That has also tremendously helped.
performance. A lot of that happened last year and early this year is getting some of those sponsors that just in a bad situation out, which helps the overall market as well.
David Moghavem (32:24)
Yeah, and you know, in Atlanta, you're seeing those distress deals one way or another. And again, we talked about this already, but may or may not translate to a sale. I guess at this point, how much distress is due to the market at this point versus the sponsor and running out of capital, not having any more money to fund turns, things like that. Like, what would you say is the ratio at this point?
Brooks Colquitt (32:51)
That's a good question.
I would say it's very rare to see a property with an owner that has capital or that's still turning, basically operating the deal. It's very rare to see extreme bad debt figures on those properties. I don't know the exact percentage. I would say less than 10%. Yes, less than 10%.
David Moghavem (33:11)
If they have the capital, exactly. if they have the, yeah.
Yep, yep. Yeah, I agree. I mean, I think coming out of COVID, it was a little bit backlogged. The market was tough. It was tough to evict. At this point, Atlanta's caught up where it's really sponsor driven if a deal is truly distressed. I think market bad debt, as you said, it got cut in half. I think in some counties it's even better than others. So.
It's an opportunity where if you're a good manager and you're on the ball and you have a good team on the ground, you can really do well. And if you don't have that, you could still get crushed. If you don't, if you're not capitalized, you can get crushed.
Brooks Colquitt (33:54)
Yeah, and I will add to that, and you said it before me, the key is the people on the ground. We are seeing a property on one street where it's 96 % occupied and it's got 1 % bad debt. And the property next door, same vintage, is 80 % occupied with 4 % bad debt. And it really comes down to the people and how that organization is laid out.
that is definitely still a very important factor. And if you have that before you come into Atlanta or if you're in Atlanta, you can really, really do well here. But that's also, I wanted to touch on that. That is important is the people actually operating the property.
David Moghavem (34:37)
know, one thing that attracted us about Atlanta and deals in particular is you're seeing a lot of institutional capital that own in Atlanta and they've owned historically, but you're seeing right now that they might be a little skittish from the reasons we just spoke about. We spoke also about how people are starting to itch back into coming in Atlanta. When do you see
the full blown institutional capital that are in the rent comps starting to come back and actually buy and not just put bids but actually start buying and make big bets in Atlanta. When do you see that playing out? Do you think that's this year, next year? Is it already happening? Like what are you seeing boots on the ground?
Brooks Colquitt (35:21)
It is already happening, but it's not happening at a rate where it's becoming, I would say, too competitive is the best way to describe it. So for example, most of the deals that they're bidding on, they're on the sheet, but they're still not competitive. However, we have seen institutions become competitive now, but they're not buying at the rate they were. Here's the answer. As soon as third party data reports show rent growth,
and show that bad debt that we're feeling on Boots on the Ground, it's gonna become almost impossible to win a deal because they're gonna put all their bets in Atlanta, the data is gonna be driven, and what we've been telling our private clients, as most of our clients happen to be private in some nature, is being entrepreneurial, looking at what is happening at your properties, being Boots on the Ground, trusting your broker, trusting your property management company, trusting your regional.
get ahead of it, because we all can feel it happening, but the institutions kind of act on data. so to answer your question, they will come in and drows once the data shows what we're feeling.
David Moghavem (36:26)
Yeah.
Yeah, and I think that's where a niche company like us, like Atryon, where we're vertically integrated and we're kind of seeing things firsthand before it hits the data set. Just we can track when we're approaching a fallen knife. We can also see things when we're starting to see positive tradeouts. We get to see both sides of it, and that's where we get to place our bets early.
before the institutional capital comes and start flooding in. By that point, it's game over.
Brooks Colquitt (37:05)
there is some positivity to that. You'll see cap rate compression. And so if you're buying now, you're going to get the benefit of that of when you sell. Is when they come into play, the regional players go down to 80s. The private, you know, more local guys go down to 70s. All of a sudden cap rates start compressing.
That's just another reason of why it is really a good time to put capital into Atlanta before that all starts happening.
David Moghavem (37:33)
the deal we did together, it's, you know, early 2000s, nine foot ceiling product, South Atlanta, base of the martini glass as we were talking about workforce demos. But that nine foot ceiling early 2000s product, there's institutional comps, owners in the comp set. There's going to be some point when they maybe come back. If they don't come back, you're still cash flowing six, seven.
percent cash on cash today with rates as high as they are. And the hope is, you know, maybe you can even refine to something lower. If that institutional capital doesn't come back, you're still cash flowing. But I think when that if and when that institutional capital comes back, you're going to definitely see that nine foot ceiling early 2000s product cap rates start to compress drastically.
Brooks Colquitt (38:21)
And they'll start in kind of your bulletproof locations where it's all not all institutional, but for the most part. And yeah, once it becomes too competitive for them, capital disperses. But the good news about your property in particular and really South Atlanta is there is always capital chasing that. I want to be clear, like just because we're in a quote unquote down market.
David Moghavem (38:43)
Mm-hmm.
Brooks Colquitt (38:47)
does not mean that you can't liquidate. just because the institution is not looking at it does not mean you won't get paid an institutional cap rate. That's one good thing about Atlanta. It's a national market. Everyone looks at it. It gets a lot of eyeballs. And so to quote unquote time it perfectly, you're right. You would want someone with the cheap cost of capital to buy your deal, but that doesn't mean that you can't get a similar cap rate before that happens.
David Moghavem (39:14)
You mentioned bulletproof markets. I want to ask you as someone who's covering a lot of markets which pockets of Atlanta are you most bullish on?
Brooks Colquitt (39:25)
Great question. I would say, this is such a broker answer, I would say everywhere, everywhere is, there's a lot of, I'll put a lot of facts behind this. As long as your basis, it doesn't necessarily have to be day one yield. Day one yield is always a positive thing.
David Moghavem (39:34)
Everywhere.
Brooks Colquitt (39:52)
it de-risk is you, like you said, if you can't sell it, it's still cash flows. It allows you to refi, et cetera. Sometimes low basis, if you can't stabilize it, if you can't get the rents to where you need to be, you might not be able to refi at a position that you under it. But in general, and based on what we've seen in Atlanta, as long as you're buying at a basis that's relative to COVID S trades, so call it like 2020, 2019,
even early 2021 before the market went berserk. If your pricing is at that range, you're getting a hell of a deal because rents 50 % almost in certain properties. In general, the market moved about 27%. So if you're buying a property at that same cost from that time to today, you're getting a great deal. It's hard to find those. Normally, say a property traded in 2019 for 150 a door.
Today it's worth 180. But if you find something in between that 150 and 180, it's a great basis. So long-winded way of saying, there's not a county or a spot that I don't like as long as you're buying at the right basis.
David Moghavem (41:11)
Yeah, think, listen, I know it was a broker answer, I'll let you off the hook, but I do agree with that. I do agree with that. think when you're looking at these sale comps and then you're looking at where you're buying and then where you're moving, I know why, and you're putting a cap rate that's a reasonable cap rate, you know, probably no cap, when you're putting, you know, no cap rate compression in a trended rent in three to five years and you're exiting where deals were trading three years ago, that feels pretty good.
You know, you're buying something with an impaired NOI with elevated bad debt, elevated vacancy due to the supply, elevated bad debt due to coming out of COVID. And you're doing real management operations for upside, know, we're value add guys. So moving the NOI without having to bank on a reno play, obviously that might come down the line, but just improving operations and moving the NOI and then putting it at a exit cap.
that's similar to where your impaired NOI was and exiting at where deals were trading at from a basis standpoint, that feels pretty good to me. And so as a value add guy, you're bringing in the value by improving operations and you're conservatively assuming exits where you're not breaking records on this.
Brooks Colquitt (42:34)
Yep, correct. I kind of describe it to some of my clients where at this point in the cycle where we are today, there's too much that can go right to make the investment work versus that could go wrong. And for example, in 2022, you're underwriting 15 % rent growth the first three years. You're underwriting a $300 rent bump on value add. You're underwriting
a compressed cap rate on the exit or a cap rate on the exit that has historically lower than they've ever traded. There's all these things. Now, all the data pointed to that, but there is a lot of what ifs that could go wrong to make that what seemed like a good investment a bad investment. Right now, a lot of the what ifs or situations are positive to that buyer. For example, if you're underwriting to a cap rate
say at six, but yet for the last five years, it's all traded at five and a half. You have to underwrite the six, but if it works at six and you get a five exit, you're gonna be really happy. If you're underwriting for $100, $200 rental increases based off XYZ Comp, well that XYZ Comp goes through a lease up and all of a sudden they're turning their rents and there's just too many things that can go right to make your investment.
very good versus to where we were a couple years ago. Again, it's kind of back to that theme where we really think it's a good time to buy.
David Moghavem (44:03)
Yeah, it goes back to, you know, protecting your downside. And if you're protecting your downside now, then you know, it's going to pay dividends when the market recovers, not matter if, but when. So Brooks, it was awesome having you. Thanks again. Looking forward to this year. You want to let the audience know how can they get ahold of you if they want to learn more about Atlanta and some of the opportunities you have.
Brooks Colquitt (44:30)
Yeah, sure. So, David, feel free to share my information. I'm in the Newmark office in Atlanta. My email is online. You guys can just look it up on the Newmark website. Cell phone's on there. Call me any time if you guys have any questions. If you're ever in Atlanta, feel free to reach out. I always answer my cell phone no matter what time of day it is. So give me a shout and look forward to connecting.
David Moghavem (44:55)
Awesome. Brooks, thanks again. Hopefully we get another deal and we could get another round of golf. Everyone, Brooks is a scratch golfer. So if you close the deal with him, he might kick your ass in golf.
Brooks Colquitt (45:03)
Ha ha ha.
Hopefully my cap rate or my cap rate, hopefully my handicap goes up and cap rates go down this year. That would be great.
David Moghavem (45:13)
Ha!
Awesome. All right, Brooks, thanks again.
Brooks Colquitt (45:18)
Thanks, David.