Real estate firm Thompson Thrift is betting on a mid-term recovery of rent prices in the multifamily sector as it seeks hundreds of millions in investment for the ground-up development of new projects across multiple states.
The call for capital comes as some of the largest apartment owners in the country have also signaled that multifamily property prices could be bottoming as supply-induced declines in rents have run their course and strong demand factors including job growth and migration trends will benefit Sun Belt markets.
Thompson Thrift said it has identified six projects it expects to begin construction work on as soon as 2025 located in Georgia, Florida, Colorado, Kansas, and its home state of Indiana using its internal development arm. The fund, named Thompson Thrift 2025 Multifamily Development, is looking to raise a total of $230 million from accredited investors to finance the projects.
"I firmly believe that now is the opportune time in the cycle to invest in multifamily, with construction starts at their lowest in over a decade," Paul Thrift, Thompson Thrift’s chief executive, said in a statement. "This reduced supply should drive rent growth and rising valuations in the coming years, ultimately generating value for our investment partners."
After peaking in the first quarter of 2021, the number of multifamily construction starts nationwide has declined 74% as of the third quarter of 2024, according to CoStar data. Likewise, the number of units under construction has fallen nearly 40% between peaks in the first quarter of 2023 and 2024’s third quarter.
Yearly rent growth over that time slowed significantly, dropping from 9.9% in the first quarter of 2022 to just 1% over the past five quarters. The slowdown in rent growth was particularly pronounced in Sun Belt markets that saw yearly declines in rent prices as much as 5% in some areas.
Although analysts don’t predict the near-double-digit rent growth experienced in 2021 and 2022, the slowdown in construction starts is expected to push growth back near 4% nationwide by the second half of 2025, sustaining that level through much of 2027.
Developers bank on demand
The Thompson Thrift 2025 Multifamily Development fund marks the seventh multifamily limited partnership launched by the company and comes as many publicly traded real estate investment trusts have returned to purchases on similar investment assumptions.
Mid-America Apartment Communities, one of the largest owners and operators of multifamily properties in the country, has said it plans to expand its portfolio this year with a target of gaining 6% on its investments. Executives have indicated the company’s development pipeline could reach $1 billion in total investments, more than double the company’s development pipeline from 2022.
“In the midst of record levels of new supply coming into our markets, and we’re in the worst of the storm right now, we’re seeing a bottom occurring with new lease pricing,” Eric Bolton, chief executive at MAA, said on the company’s second-quarter earnings call. “We think particularly as you get into next year … new lease pricing will really take off.”
Allowing the company to push rents has been strong demand factors, including wage and job growth along with positive household formation. The significant cost of home ownership relative to renting has also pushed the proportion of residents moving out to buy homes down to 12.4%, the lowest rate ever recorded by MAA. These factors have led to record levels of resident retention and strong lease renewal performance across MAA’s portfolio, executives said.
AvalonBay Communities, another apartment giant, raised over $500 million in the first half of 2024 through property sales in slower-growing coastal markets. The company has said it is in the process of reallocating that money into acquisitions in its expansion regions, where it sees a higher potential for growth that includes places such as Denver, Dallas, and Austin, Texas, along with several markets in North Carolina and Southeast Florida.
Since adding a multifamily business in 2008, Thompson Thrift has developed more than 85 projects in suburban locations across 22 states, raising more than $1.5 billion in equity capital since 2010.