Despite the addition of thousands of new apartments and condominiums in Chattanooga over the past three years, outside investors continued to bid up the value of apartment complexes in Hamilton County during 2019.
Equity investment firms from New York to California collectively spent more than $200 million in 2019 buying rental properties in Hamilton County, according to property records by the Hamilton County Register of Deeds.
Eight of the 10 biggest real estate sales of last year in Hamilton County were of existing suburban apartment complexes, which sold this year for an average price of $109,102 per apartment. Three major apartment complexes - Hunters Point and the Shallowford Apartment Homes in East Brainerd and the Riverview Grande apartments in North Chattanooga - sold for more than $30 million each this year to investment companies based in Pasadena, Calif., Austin, Tex., or Atlanta.
"The market for suburban apartments and multi-family housing is very strong and there is a lot of capital from regional and national investors chasing that product," said David DeVaney, president of NAI Charter Real Estate in Chattanooga who has worked in commercial real estate for nearly three decades. "The cap rates (or investment yields) in Chattanooga are 50 to 100 basis points higher than other major markets like Nashville, Atlanta and Charlotte (North Carolina), so the prices here are going up."
Top 10 Chattanooga-area real estate deals of 2019
Here are the Chattanooga area's biggest real estate deals of 2019:1. Hunters Point sold for $35.8 million in September2. The Shallowford Apartment Homes in East Brainerd sold for $32 million in July3. Riverview Grande apartments sold for $31 million in May4. Meridian at Hamilton Place sold for $22.5 million in July (170 units)5. Evergreen at Hickory Valley sold for $18.5 million in September (200 units)6. Office at 1301 Riverfront Parkway sold for $17.8 million in September7. Soddy-Daisy Health Care Center nursing home sold for $16.4 million in September8. Midtown Ridge Apartments sold for $15.05 million in November9. Ridgeside Apartments in Hixson sold for $11.3 million in December10. Lee Point office building on Lee Highway sold for $11 million in FebruarySource: Hamilton County Register of Deeds
Real estate investment trusts and other investment groups that once were buying apartment complexes only in bigger markets have increasingly moved to mid-sized cities like Chattanooga to take advantage of more affordable properties that can often generate bigger returns for investors, DeVaney said.
Henry Glascock, a real estate broker for more than four decades whose company provides commercial property appraisals and auctions, said low interest rates are fueling the heightened interest in apartments with good occupancy rates.
"With interest rates so low, investors looking for relatively safe and secure investments are looking for properties that yield a steady income with relatively low risk, which these properties tend to offer in Chattanooga," Glascock said. "Even a 5% return beats what T-bills and CDs are offering and the properties that have a consistent earnings record are considered relatively safe investments. As long as interest rates remain low, I think there will continue to be strong interest in Chattanooga, particularly since this is seen as a good, growth market."
Glascock said the suburban apartment market remains strong, although he said he is concerned that the addition of so many apartments in and around downtown where land prices are much higher and parking more limited may prove to be more risky.
Earlier this year, River City Co. said 3,223 more apartment units and 1,917 more beds for students at the University of Tennessee were added in and around downtown Chattanooga since 2015. Hundreds of more apartment units are still under construction 0r development.
"I personally don't think that the occupancy rates can be sustained with all of the new developments being added in the market, but only time will tell," Glascock said. "For the foreseeable, short-term future, this is still seen as a strong market and we're likely to continue to see institutional investors interested in buying apartments here."
DeVaney and Glascock said the market for office space is not as strong, however. More businesses are allowing workers to do their jobs from home or in open office environments which demand less square footage per worker.
"There are a number of office buildings with available space and we're not seeing dramatic growth in the demand for more office space," DeVaney said.
While the 10 biggest individual property sales were of apartments, offices and a nursing home this year, the majority of real estate sales in 2019 were of single family homes. According to the most recent report from the Greater Chattanooga Realtors, pending home sales were up 9.7 percent in the first 11 months of 2019, rising to a record high 10,283 pending or closed home sales for the year.
The median sales price of single-family homes sold in Chattanooga last month was $215,000, up 13.2% from a year earlier, according to multiple listing sales compiled by the Greater Chattanooga Realtors association.
Contact Dave Flessner at dflessner@timesfreepress.com or at 757-6340.