From the start, our team recognized the Midwest as an ideal market to put Archstone’s value-add strategy into action. We began in Illinois and Iowa, in cities like Des Moines, Iowa City, and Davenport. Now, our operating geography where we evaluate deals extends all across the region, to Madison, Omaha, Columbus, Cincinnati, and Kansas City.
It was the relative affordability of the Midwest that first caught our attention. Reasonable rent prices and economic diversity are an obvious draw to the region. And now, with shifting populations and evolving economics conditions across the entire U.S., we’re seeing firsthand why the area is so valuable in multifamily real estate.
An unbeatable value
When it comes to rent, there’s a common rule of thumb echoed by financial planners: budget roughly 25-30% of your monthly take-home for rental costs. That figure is usually given some wiggle room on either end, depending on the area. In a high cost of living city, renters might be advised to pay as much as 40%. Lower cost of living areas might allow for a smaller proportion.
The markets in the Archstone portfolio fall into the latter category. A renter might only pay 15-20% of their monthly take-home, allowing for a higher quality of life, at a lower price point. And that’s a huge differentiator as other regions face rising rents and the continued unattainability of home ownership.
Sunset in the Sunbelt
Over the last decade, the Sunbelt—the states that enjoy warm weather most months out of the year—has benefited from increased economic investment and a booming jobs market. And when states like Texas, Georgia, and Florida see an influx of economic activity, that’s great news for real estate in those areas.
But more recently, slowing population growth and higher interest rates have had a negative impact on the Sunbelt market. Despite this, a large supply of new construction continues to come online—leading to flattening or even lowering YOY rent growth. In Atlanta, for example, rent growth was down 2.7% in 2023. In Dallas, it was down 1.4% that same year.
While the Midwest hasn’t seen robust figures like the Sunbelt’s recent run, things are steady. And when rents in other markets reach an unsustainable level, steady can make all the difference. In Des Moines—an Archstone market—rent growth was at 2.1% in 2023. This year, it’s projected to reach 3.9%.
The Archstone Approach
Our approach to multi-family housing allows us to evade many of these pitfalls seen in the Sunbelt market.
That region’s housing pipeline is still strong, driving up supply and competition—and creating a headache for builders and owners. But by focusing exclusively on workforce housing, we simply don’t see that level of new construction. That—along with recognized rent affordability—anchors our approach in real cash, not just speculation.
In 2022, Archstone acquired a 66-unit property in Des Moines. Our construction team began on full interior exterior renovations in the Finn Apartments. And within the first seven months, the property outperformed NOI projections by $13,000. Our value-add strategy is about recognizing these opportunities to make savvy acquisitions that help us reach our benchmarks faster.
And we’re still just getting started. Late last year, we acquired our first property in Kansas City, formally entering that market. There’s so much potential in the Midwest and we continue to be excited to work with our stakeholders to fully realize it.
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