LEM Capital Sees Class B Investment Opportunties in Southeast, Southwest

Editor’s note: This article was originally prepared for our content partner, GlobeSt.com.

PHILADELPHIA, PA—Multifamily properties are seeing robust activity around the country, but not everyone is focused on top quality luxury rental properties. Philadelphia based LEM Capital specializes in multifamily properties where a value-add strategy can be successful.

“What we’ve been studying for the past seven years is the demand and supply numbers for class B housing,” says Jay Eisner, a partner and co-founder of LEM Capital. Four million millennials will turn 22 every year between now and 2025, and the overhang of $1.4 trillion of student debt will keep millennials in apartments longer, he says.

At the other end, baby boomers are “the largest segment of apartment growth over the last ten years,” he says. “We continue to see growing demand for multifamily.”

You can watch the complete video interview with Jay Eisner in the player below.

The reason LEM focused on class B multifamily is that almost all new supply in the market is class-A “luxury style” housing.

“To justify the cost of new construction you really need to be able to achieve a rent of $2 a square foot or more,” he says. “The average rent in class B is closer to $1.25 a square foot, so there is a large spread between the cost to build class A and the cost to rent class A, and it’s almost impossible to build to a class B rent.”

LEM, like other class B investors, focuses on properties seen as “value-add” opportunities.

“People are very willing to pay for good quality apartments,” he says. “We’re buying properties that are 10-30 years old and generally spending between $10 and $15,000 a unit, opening up the apartment so they have a more contemporary design.”

LEM also creates newer amenities in older properties, including modern fitness centers, he says, or opening up a clubhouse, new furniture schemes, updates to pools and outdoor recreation and grill areas.

“We’re able to increase rents, because people want that kind of lifestyle,” he says. “Clearly it’s not going to be the same as a newly constructed property, but we want to give them a class A feel at a price that’s much more affordable.”

LEM is mainly focused on markets in the Southeast and Southwest, and the Denver market. The firm has interest in Sacramento, Seattle, Minneapolis, and Chicago, but deal flows are lower, Eisner says.

“They’re all places that are projected to have good population and job growth,” he says. “We look for cities where there are very diverse job drivers, good highway access, good school systems, good retail, just generally good places for people to live.”

LEM’s tenants earn between $35,000-$70,000 a year, a typical range for what Eisner calls the “blue- to grey-collar workforce.”