New $200M Sun Belt REIT Targets Vintage Multifamily Apartments

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Ari Rastegar is bullish that demand will soon skyrocket for apartment living in the Southern U.S.

This optimism prompted the founder and CEO of Rastegar Property Company to launch a new $200 million real estate investment trust (REIT) focused on investments in vintage multifamily properties across the Sun Belt region. Common stock of the REIT is priced at $100 per share, and is expected to be made available through Boustead Securities.

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Rastegar noted that the Sun Belt, which encompasses 18 states and seven of the nation’s largest cities, has seen massive expansion in recent years from those fleeing coastal areas for more affordable lifestyles, with the trend picking up even more steam during the COVID-19 pandemic. He said the Rastegar Opportunity REIT will specifically target vintage multifamily assets like garden apartment complexes located within Class A markets, in anticipation of the region’s growth continuing to accelerate in the years ahead.

“This is the last asset class of commercial real estate that is untouched by private equity,” said Rastegar, who founded his Austin-based company in 2015. “It’s a Sun Belt-focused REIT [targeted] around cities that are technology hubs that are really capitalizing on the exodus of the coastal cities.”

The Rastegar Opportunity REIT was in the works prior to COVID-19, with the pandemic only further spurring its formation as more people explored smaller garden-style apartments with greater social distancing features, as opposed to traditional buildings requiring elevators. Rastegar said it will likely take years for many tenants to feel comfortable living in large apartment buildings, even after much of the country is vaccinated and warmer geographic regions of the country are more desirable now due to risks of future virus-related lockdowns.

Demographic trends were a big driver of the decision to launch the REIT, according to Rastegar, since data from Pew Research Center shows 52 percent of U.S. young adults between ages 18 and 29 are living with their parents in 2020, up from 44 percent in 2010. Rastegar said he expects many of these millennials to eye affordable garden-style apartment options within the Sun Belt region, rather than high-rises in big cities along the east and west coasts. He defines vintage multifamily properties as those located within class A locations that are around 30 to 40 years old and are under 100 units.

“We’re institutionalizing mom-and-pop apartment complexes,” Rastegar said. “Institutions will never target these properties on their own, because their cost of capital is too much and they need to place too much equity.” 

Rastegar noted that smaller apartment complexes are typically too small for private equity investments, since purchase prices would fall somewhere in the $4 million to $20 million range. He estimates that the Sun Belt has around $45 billion of these types of highly occupied, multifamily assets requiring “gut renovations” that are untouched by private equity.

The 38-year-old CEO said the newly launched REIT is just the beginning in terms of investing in vintage multifamily properties in the Sun Belt. He is planning five additional REITs in the next five years totaling around $1 billion.

“Once these are fully stabilized, you are talking about way higher cash flows than these other larger apartment complexes that institutions buy,” he said. “There is about $45 billion dollars of this product just in the Sun Belt, so if we raise $5 billion of equity with prudent leverage, we wouldn’t even hit 20 percent of that.”