Memphis, Tennessee-based Fogelman Properties first made its name in the apartment business as an early developer and property manager with a strong Southeastern operation.

But over the years, Fogelman’s focus has added to its own portfolio of properties as company leaders sought the certainty and inherent control of apartment ownership. The firm has purchased approximately $600 million worth of apartment properties in the Sun Belt over the past few years — primarily in Texas, Florida and Georgia.

After making those buys, Fogelman now owns and manages 29,000 units across 12 states in the Southeast and Midwest. “Most of what we manage are properties we have ownership in, and we have several large long-term, third-party portfolios,” Fogelman said

Here, CEO Mark Fogelman talks with Multifamily Dive about the difficulty of finding value-add deals, the impact of rising interest rates and rent and delinquency trends.

This interview has been edited for brevity and clarity.

MULTIFAMILY DIVE: How hard is it to find properties that meet your investment criteria?

MARK FOGELMAN: There are not a lot of properties left where you see the original cabinets, appliances, flooring and amenities. That is where we can make the biggest impact and get the biggest rent lift. And with revenue management spreading across more than half the industry, there are not as many hidden gems or mispriced assets. In the old days, you'd find many opportunities on the expense side with things like utility management. Now there are just not obvious opportunities. 

With that said, we've closed five transactions in the first six months of this year, which was our best first half in a while. It was just a lot harder to find the opportunities. But, we found a lot of opportunities through relationship-based sourcing as opposed to bidding on the open market.

Do you think it will be easier to find properties with turbulence in the market?

There has been major turbulence in the financial markets in the last 30 to 45 days, but we've stayed in the market during that time. It feels like buyers’ demands have been cut in half, but at the same time, I don't think the news about the financial challenges has hit sellers. A lot of sellers are still living in yesterday's world. It will probably take three to six months before people have to go through an experience of not getting the pricing they want on an asset or seeing a transaction not materialize because the buyer couldn't get financing. 

Is securing loans getting more difficult?

We have a property under contract right now. We approached 29 lenders of different types and typically would have had at least soft quotes from the vast majority of them. Less than half even responded and we only had two or three real options — and two of the three are from agencies. Some of the recent softness in pricing has gotten the agencies back in the game. 

Leverage cannot be maximized with the agencies, but A-rated borrowers can get north of 60% leverage with attractive terms. We are still seeing some interest in balance-sheet lending from big international banks. We don’t see debt funds, life companies and regional banks being able to compete right now. 

On the other hand, there is still strong demand. What does that look like in your portfolio?

Last year, had probably the strongest revenue growth in the history of the industry. Then the first half of this year blew out 2021 — the second quarter of 2022 was our highest year-over-year rental rate growth on record. 

Do you see signs of a slowdown due to inflation?

At properties where the household income is lower, it's a more financially challenging profile. You're starting to see some leakage there. But, when I say leakage, it may mean that our delinquency went from 1.5% to 3%. Maybe the worst is 4%. But it’s starting to show up on the delinquency and credit-loss side.

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