East Brainerd apartments sold for $46.8 million as outside investors continue to bid up rental properties in Chattanooga

Photo by Dave Flessner / The Parc 1346 Apartments include 316 one-, two- and three-bedroom units off of Gunbarrel Road in East Brainerd.

In its second major apartment acquisition in East Brainerd in as many years, an Atlanta-based real estate investment firm has purchased the Parc 1346 apartment complex on Gunbarrel Road for $46.8 million.

The Shoptaw Group, which bought The Shallowford apartments last year for $32 million, bought the 316-unit Parc 1346 complex for nearly 60% more than what the former owners paid for the property just six years earlier, according to documents filed Tuesday with the Hamilton County Register of Deeds. The purchase was the second highest price ever paid for an apartment complex in Chattanooga and underscores the growing appeal of the local residential rental market to real estate investment firms across the country.

According to the Hamilton County property records, outside investors have paid nearly $300 million to buy apartment complexes in Chattanooga over the past two years as rental rates have risen and interest rates have dropped.

But those rising values are proving costly for apartment tenants in Chattanooga.

A study of apartment rental rates for December released Tuesday by the online rental service Zumper showed the average two-bedroom apartment in Chattanooga is renting for $1,200 a month, or 17.6% more than a year ago. Although Chattanooga apartment rental rates average 19.3% less than the U.S. average of $1,487 for a two-bedroom unit, Chattanooga rental rates are rising at some of the fastest rates in the country and more than six times the growth in average income in the past year.

"After the pandemic hit in March, we've seen a general trend of renters leaving pricier areas in favor of cheaper markets," said Crystal Chen, a senior manager of public relations for Zumper. "Our top two most expensive cities, San Francisco and New York, have rents down 17% to 23% year-over-year. As many people are working from home indefinitely, the priorities of renters have shifted away from big city amenities to more space and affordability."

Biggest apartment sales

Four of the five biggest apartment sales in Hamilton County have come in the past 15 months.1. The 283-unit Bluebird Row Apartments at the Chattanooga Choo Choo sold for $63.15 million in March 2020.2. Pictured above, the 316-unit Parc 1346 apartments off of Gunbarrel Road in East Brainerd sold for $46.8 million in November 2020.3. The 308-unit Marina Pointe Apartments on Lake Shore Drive in Hixson were sold for $44.5 million in October 2020.4. The Legends at White Oak in Collegedale sold for $41.8 million in September 2016.5. The 260-unit Hunters Point apartment complex in East Brainerd sold for $35.8 million in September 2019.Source: Hamilton County Register of Deeds

The trend can be witnessed in Chattanooga since it is a more affordable city, Chen said. A one-bedroom apartment in Chattanooga rents for an average of $1,040, which is 15% below the national one-bedroom median of $1,224 and less than half the average rent for such units in San Francisco and New York.

"We're seeing continued growth in our population as more people move to Chattanooga and our housing stock is not keeping up with that demand," said Brandi Pearl Thompson, president of the Greater Chattanooga Realtors association.

With the number of homes for sale down near all-time lows in comparison with sales demand, median prices for single-family homes sold in Chattanooga in the third quarter of 2020 rose by more than 16% from the same period a year earlier, according to a third-quarter report by the National Association of Realtors.

Chattanooga homes prices still average 27% below the U.S. median price for homes sold by Realtors, but the price increases in the past year could be keeping demand for apartments higher due to more people being priced out of the housing market than in the past, especially during the economic slowdown earlier this year due to the coronavirus pandemic.

Chattanooga had the seventh-highest increase in rental rates for two-bedroom apartments among the nation's 100 biggest cities, behind only St. Petersburg, Florida, Sacramento, California, Cleveland, Ohio, Albuquerque, New Mexico and Tucson, Arizona over the past year, according to Zumper's National Rent Report for December.

photo Photo by Dave Flessner / The Parc 1346 Apartments off of Gunbarrel Road in East Brainerd sold to an Atlanta investment group for $46.8 million.

Higher rental rates, combined with cheaper borrowing costs as interest rates have declined, have boosted the values of apartments in Chattanooga and led to four of the biggest all-time sale prices for any apartment complex in Hamilton County during the past 15 months. All of the local apartment sales above $30 million in the past couple of years have been at premium prices compared to what other investor groups paid for the same properties in prior years.

At Parc1346, which was originally built in 1999 as Carriage Parc apartments, the new owners paid $17.5 million more than what the former owners paid to acquire the property in December 2014. The 21.3-acre complex includes 14 apartment buildings built around a pond, swimming pool, clubhouse and other amenities.

Walt Plyler, president and CEO of the Shoptaw Group, declined Tuesday to discuss his company's purchase of the apartment complex.

But the new owners are keeping the Fogelman Management Group as operators of the one- two- and three-bedroom units located just a couple of miles south of Hamilton Place Mall. The facility is now about 90% occupied and the new owners plan to upgrade the office, park and walking and picnic area around the ponds at the complex, in addition to adding a dog park. The general manager for the complex is Tracy Mclane.

Contact Dave Flessner at dflessner@timesfreepress.com or at 423-757-6340.