The Sunbelt has drawn a wave of out-of-state capital, and many of those buyers are about to learn an expensive lesson. As Ron Kutas, CEO of OneWall Communities, puts it: “They underwrote a general market, but bought a submarket.”
The distinction matters more than most Northeast operators realize. “The Sunbelt is huge, and markets are much larger, so if you’re looking at market data, it’s skewed,” Kutas says. “You really have to understand the neighborhood that you’re buying.
The labor market can be very different from street to street.” His most contrarian call is Houston. “A lot of people have gotten burnt in Houston. Supply predictability is very difficult because of the lack of zoning laws, and Houston is like 26 different submarkets. People, especially from the Northeast, don’t really understand that until they’ve been there.”
The second trap is rent growth. Institutional teams often see room to lift rents 10, 15, even 20 percent based on submarket data. “What they’re not taking into account is their current resident base. Can they actually take on that increase?” Kutas warns. Push too hard and the turnover math breaks. A property modeled on a 20 percent annual turnover rate can suddenly see 40, 50, or 60 percent of residents move out, requiring two or three times the turnover capital that was budgeted, and leaving units vacant longer.
So what would OneWall Communities do first with a Class B asset in a soft submarket? Not open a spreadsheet. “A full analysis of the income aspect of the demographic, understanding where they work, what their actual tolerance for rent growth is.” That operational lens, rather than macro-level assumptions, is what separates durable value-add from a stalled business plan in workforce housing.
Property management is complex, and the best solutions come from shared incentives. Whether you’re exploring new approaches or facing specific challenges, we’re here to talk. Visit us at onewallcommunities.com or call us at (646) 596-7068.