Apartment Loan Rate Stays Below 5% For 10th Week

April 11, 2014 by · Leave a Comment
Filed under: Apartment Finance, Apartment Rates 

The apartment investment loan we tract (see below for details) clocked in at 4.861% this week making it the 10th week in a row below 5%. Meanwhile the spread between it and the benchmark 10 year Treasury (T10) held in the 210 -220 basis point range over the last six weeks.  The T10 itself had been in the 2.7% range over the last month but dipped to 2.65% this week:

Apartment Building Investment Loan Rate vs Ten Year Treasury Rate April 2014

Speaking of the spread between the T10 and the ten year apartment loan rate, now that Read more

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Apartment Loan Rate Falls To Nine Month Low of 4.743%

March 7, 2014 by · Leave a Comment
Filed under: Apartment Finance, Apartment Rates 

After spending just one week above its six month moving average the spread between the apartment investment loan rate we track and the 10 year Treasury (T10) fell to 2.143 with the apartment loan rate at a nine month low of 4.743%. Meanwhile the T10 bounced up to 2.8%, climbing 20bp in the past week:

Apartment Invesment Loan Rate vs. 10 year Treasury March 2014

Speaking of the spread between the T10 and the ten year apartment loan rate, now that we have more than a year’s worth of data Read more

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Apartment Investment Loan Rates Drift Lower But Spread Widens

Over the last month the apartment loan rate we track eased slightly from 5.17% to just under 5 at 4.959% as the 10 year Treasury continued to fall causing the spread to rise above its 6 month average for the first time since July of last year but remains tighter than a year ago:

Apartment Investment Loan Rate versus 10 year Treasury Feb 2014

Speaking of the spread between the T10 and the ten year apartment loan rate, now that Read more

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Apartment Loan Rate Rises rise above Treasuries as Spread Widens

January 3, 2014 by · Leave a Comment
Filed under: Apartment Finance, Apartment Rates 

Happy New Year everyone. Loan rates from the lender we track have risen over the last few weeks as the ten year Treasury (T10) has climbed about 25 basis points (bp) and the spread between the two has widened about 10 basis points. At 221bp though it remains tighter than a year ago when it ranged in the 270bp area.

Apartment Building Investment Loan Rate and 10yr Treasury Spread

Click on Image for full size.

Speaking of the spread between the T10 and the ten year apartment loan rate, now that Read more

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Apartment Building Investment in 2014, opportunities among interesting times

Wrapping up in the office on this last day of 2013 and wanted to share some things that have been twitching my antennae lately:

How will the taper affect apartment builiding investment?

The Taper, actually a Malayan Tapir
Source: www.konicaminolta.com

While there’s been a lot of ink/bits spilled over a slight and possibly temporary ‘taper’ in the Fed’s bond buying spree known as QE to Infinity! the one thing they have been unequivocal about is their intention to hold interest rates low (read: near zero) for an extended period that has now been stretched out as far as 2017. Meanwhile ‘everyone knows’ interest rates are going up.

Which will prevail? The Fed has been pretty successful at forcing them down and holding them there for years, going on 14 if you start counting from the dot com crash. On the other hand if everyone knows rates are going up they will act accordingly and that will tend to push rates up, at least long rates which the Fed has less control over. For a very interesting take on how to deal with what ‘everyone knows that everyone knows’ see Ben Hunt on Epsilon Theory.

What does it mean for us as apartment investors? If ‘everyone’ is right Read more

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The most important thing growing online sales means to Commercial Real Estate and Apartment Building Investors

December 14, 2013 by · Leave a Comment
Filed under: Multifamily Investments 

If/when the day comes that we’re buying everything online and even offices disappear so we all end up working online in our sweats from the couch, we’ll still need a place to put the couch. That’s why apartment building investments make the most sense to me.

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5 Key Trends from the ULI Report for Apartment Building Investors and Commercial Real Estate Pros

The Urban Land Institute/PriceWaterhouseCoopers annual report on Emerging Trends for Real Estate 2014 was released last week and apartment building investors and commercial real estate pros have some good things to look forward to next year. Note that this post refers to the Americas version of the report with separate sections on Canadian and Latin American markets but they also publish Asia-Pacific and European editions as well. This is the 35th edition of the report is it’s based on individual  interviews or surveys from more than 1,000 investors, fund managers, developers, property companies, lenders, brokers, advisers, and consultants.

Here are the 5 key trends we should all be aware of with my comments:

  • Survey participants continue to rank private direct real estate investment as having the best investment prospects. Pretty expected from this group but the National Council of Real Estate Investment Fiduciaries (NCREIF) recently released its property performance index for the third quarter of 2013 and on a trailing 12-month basis, the index’s return was 11.0 percent, split about 50/50 between income and appreciation. A pretty nice return compared to fixed income rates and a much safer looking bet than buying equities at their all time highs.
  • Dependence on cap rate compression to drive value is being replaced by an emphasis on asset management. Especially in the 24 hour gateway markets apartment building cap rates are about as low as they can get (well until you look at Vancouver BC) so property performance has to come from actually making the property perform. You also have the problem of what to do with your proceeds if you do sell, as you would be reinvesting right back into the same cap rate market that you sold in… unless you changed to a higher cap rate sector, suburban strip centers anyone?
  • Opportunities to develop property are finally appearing in sectors other than multifamily. CBRE Econometrics had a piece out last week showing that large (> 350k sf) warehouse properties are being snapped up as fast as they’re being built. Maybe developers who moved over to doing apartments the last few years will move back to their home sectors and ease off on the new supply of multifamily units.
  • Value-added investment ranked highest in terms of investment strategy; distressed properties and distressed debt ranked last. We were licking our chops a few years ago waiting for RTC 2.0 fire sales to begin and while we were able take down some bank owned inventory, the anticipated tsunami of defaults on commercial loans never materialized. At this point most everything has been extended and pretended into performing status or sold off and so it’s back to making money the old fashion way: Finding and/or creating value.
  • Both equity investors and lenders are widening their search for business to include secondary markets and niche property types. This will be a double edged sword for investors who are focused on those secondary and tertiary markets as debt financing will be more available but there will also be more competition from sophisticated outsiders with deep pockets. The key will be to make them your buyers so dig in, find the right properties and tie them up quickly.

Emerging Trends Barometer for Apartment Building Investors and Commercial Real Estate 2014

As always with real estate, sectors and markets are so distinct from one another it’s almost pointless to generalize as the chart above attempts to do so next week I’ll dive into the apartment sector to see what gems they’ve unearthed. Meanwhile for the Read more

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5 Key Trends for Senior Living Investors, Developers and Operators via Senior Housing News

November 1, 2013 by · Leave a Comment
Filed under: Senior Living 

Senior living consultants Accent have published a whitepaper on the emerging trends their clients are searching for when selecting an independent living, assisted care, skilled nursing, memory care or other type 0f retirement community. The paper is available for free download on their website (registration required).

5 emerging trends for senior living investors, developers and operators. More at www.ashworthpartners.com

Source: www.accentonseniors.com

“This informative whitepaper provides an in-depth look at how seniors’ and baby boomers’ desire for a more fulfilling lifestyle as they grow older is driving several key developments in senior living communities. Find out how today’s active and engaged seniors are inspiring the current trends that are changing the landscapes of senior living communities. Download this informative free white paper to learn more about the expansion of the following five trends:”
  • Health & Wellness Programs
  • Lifelong Learning Programs
  • Energy-Efficient Design
  • Technology-Enabled Health Monitoring
  • Enhanced Memory Care Programs

One example of the lifelong learning trend is: “Wi-fi hot spots are becoming commonplace in addition to computer lounges, while computer labs with technicians and classes and online courses and activities are expected on the lifelong learning front.”

Read more

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Good News on Latest 10yr Treasury, Apartment Building Loan Rates and Spread Chart

In more good news for apartment building investors, both the 10 year Treasury and apartment loan rates have moderated since the Fed’s “non-taper” announcement in mid-September. The spread between the T10 and the 10 year apartment loan rate we track has come in as well. Since 9/16 the Treasury has drifted down from 2.88% to yesterday’s quote of 2.53% while the loan rate has moved from 5.282 down to 4.921, bringing the spread in to 2.381 from 2.402. The average spread for 2013 has also narrowed to 2.573%:

 

10yr Treasury and Apartment Building Loan rates as of October 29 2013. More at www.ashworthpartners.com

Notes about the apartment Read more

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Apartment investors and residents (can be) big winners in office building repurposing. Part II.

Apartment Residents love living close to work and transportation options. More at www.ashworthpartners.com

Click to see Apartment Investors And Residents Big Winners In Office Building Repurposing Part 1.

Earlier this week I posted on statistics that generated this chart from CoStar showing that 56% of  office buildings that are converted or demolished make way for apartments and/or mixed use. These type of projects do come with their own set of risks and rewards however. Fortunately that same day Globe St. posted an interview with Jim Grauley, COO and president of Columbia Residential on the down and dirty details of repositioning buildings for residential. Columbia does a lot of LIHTC (Low Income Housing Tax Credit) projects but they started up Columbia Ventures LLC to focus specifically on repositioning existing buildings for market rate housing. In a two part interview (part 1 and part 2) he laid out the requirements, risks and opportunities.

One project they currently have underway is the Imperial Hotel in downtown Atlanta. It required a complicated  financing transaction for a complete historic and LEED Gold renovation that will create 90 state of the art efficiency apartments. “Columbia also is taking on an adaptive reuse of another historically significant building in Downtown Atlanta converted to market rate apartments” said Grauley.

Their objective is to create “a sustainable urban lifestyle [that] is achievable when transit, occupation, services and entertainment are all in close proximity to home, making car ownership an option rather than a necessity.”

Here are my bullet points from the how-to knowledge he shared:

  • Target a building that has unique/non-replaceable characteristics.
  • That is located in a strong, hard to replicate, location.
  • The acquisition cost of the building structure must be significantly lower than replacement costs.
  • Market rents are a big driver of what can be done. higher rents drive acquisition, land, and construction costs higher, so in many cases reuse can be more feasible than new construction.
  • Often reuse projects will have a larger portion of capitalization via equity sources, given the renovation risks or uncertainties and lender tendency to be more conservative with the unknowns  in underwriting (= lower LTV or LTC).
  • The biggest risk is dealing with the unexpected in design, construction, and operations from older buildings. You must plan for this to happen with contingencies and very substantial up front due diligence on the building.
  • The building must have a layout that will allow the creation of desirable living spaces, with good light, volume, character, and connectivity (Ties in with the 22k floor plate ideal that was mentioned in my first post).
  • Creativity and knowing the market are key challenges in building out the kind of living spaces that will find market acceptance.
  • In older cities or districts, there are often more incentives for preservation and reuse and redevelopment.
  • In historic buildings, projects can utilize historic renovation credits and incentives to allow for feasibility.
  • It’s optimal when there are incentives and subsidies for renovation—such as state/federal historic tax credits, new markets tax credits.
  • ROI can be very good, but the often necessary subsidies for renovation or preservation can limit the re-sale timing and in some cases return..

 

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