According to Berkadia’s Q2 2020 Indianapolis Research Report, the market for Indiana apartment fundamentals have remained fairly strong through the first half of 2020, despite the COVID-19 pandemic. In fact, over 88 percent of Indianapolis renters kept on schedule with their monthly payments through mid-July —notably higher (up 30 basis points) than the same period of time in June of this year. These findings are evidence to the city’s high occupancy rate of 94.7 percent as of the end of June.
The Indiana market has had a leg up on larger markets during this time given its large suburban population. Looking ahead at the remainder of the year and beyond, we expect Indianapolis and other secondary markets to prosper given their growing renter interest and cost-effective rates.
Opportunities in the Current Indiana Market
Like the rest of the country, Indiana has felt the impact of the coronavirus, though not as much as other states. While Marion County and Indianapolis have engaged in locking down nonessential businesses and temporarily restricting travel to promote social distancing, efforts were not as strict as cities like Chicago or New York. Therefore, “deal making” has been easier to navigate due to fewer restrictions and fewer COVID-19 hot spots state-wide.
In fact, Berkadia’s Indianapolis research report found that the city’s construction industry was able to maintain momentum even while many other businesses were closed, because developers were continuously requesting permits. In the second quarter of this year, 686 new units were delivered, largely in the growing Carmel/Hamilton County submarket.
We are seeing enormous demand for well-located assets as vehicles to place capital. Even if investors are not aggressively underwriting year one rent growth, Indiana still has plenty of stable opportunities to place money, with proven return on investment due to expansive square footage widely available at a lower price compared to primary markets.
With that, large private groups and groups with discretionary equity have been aggressive in the market with extremely high demand for Class B product. We are also seeing a rush to get “capital out the door” before the election, due to uncertainties in the multifamily industry and tax codes based on who leads the next administration.
Recently, our team closed on a 568-unit multifamily property transaction, which was half market-rate housing and half Section 8. When we marketed the deal early this year, some groups were plainly disinterested. However, during COVID-19, interest increased because of the property’s ability to remain stable during the uncertainty. This is one example that indicates Indiana’s multifamily market is steady.
Secondary markets remain strong as the gateways to steady job growth, rent growth and an exceptional cost of living. With the downtown, urban office markets in flux, I’m optimistic about the opportunities that well-run cities like Indianapolis offer for the future.