A metro screen that ranks two markets on top that every broker says to skip
Here is a screen worth arguing with. Say an operator has spent six months building a buy list and the ranking finally produces something they do not trust. The screen ranks on forward deliveries as a percent of existing stock over the next eight quarters, trailing twelve months of permits against the 2022 peak, four quarter net absorption, and price per door against a builder's number for the same product. Fourteen metros in the set. The two at the top are a mid-size Texas metro and a Carolina metro. Both show permits down roughly 45 percent off peak, both show absorption running ahead of the last four quarters of deliveries, and both trade around $155k to $175k a door on 2015 to 2018 vintage garden product while local builders say they cannot get out of the ground under $235k. On the screen that is the widest basis gap in the list. Every broker in both markets says wait twelve months. Their reason is concessions, six to eight weeks free still showing on 2023 and 2024 lease-ups within a couple of miles of the assets an operator would want, and they consider stabilized asking rents fiction until that burns off. The unresolved question is whether the permit collapse is already in the asking price, or whether the broker view is correct and the screen is reading a number that lags. The decision in that position is whether to spend the next two months touring those two metros or move down to numbers four and five on the list, which are duller and 15 percent more expensive per door.
