Tom is one of my mentors and I follow what he’s doing closely to learn from a pro in apartment building investing. Here’s a video 3fer with Tom on why now is the time, if you have any contrariantestosterone as he puts it (in other words you are a true value investor). See also my notes below with the exec sum in bold.
Tom Barrack on CNBC last week
Stock markets rise and fall, but investors with a long-term view will make money, real estate investor Tom Barrack of Colony Capital is a “slow money guy”. Barrack has $27 billion invested in real estate and $45 billion in assets around the world.
Successful apartment building investing is about knowing where and when to buy and when to sell. The apartment building investment cycle sends very clear signals to those paying attention and one of the biggest and clearest is when existing properties begin to sell for more than the cost of building new apartments. As I mentioned here this line was crossed about a year ago in the Seattle market and now we can see how the peak is formed, when every developer and their brother starts building new apartments.
The biggest surge of Seattle-area apartment construction in a quarter century is threatening to undercut the growth in rents. Seattle went from “dead last” in rent increases three years ago to 13th out of 88 markets last year. “We went from almost a desert to a big pipeline” in two years, said David Young, the Seattle-based managing director who oversees western U.S. apartments for commercial broker Jones Lang LaSalle Inc.
Encouraged by hiring at local employers such as Amazon.com, Boeing and Nordstrom, developers are building almost 10,000 apartments in Washington state’s King and Snohomish counties, Three- quarters of the total are in Seattle, with 4,619 of those units in or near downtown.
Dupre + Scott Apartment Advisors Inc. said the building boom may last through 2016.
Housing ‘Bottom’ about to drown in a new wave of foreclosures.
“In what appears to be surprising news for some, Reuters has an article titled “Americans brace for next foreclosure wave” whose key premise is that “a painful part two of the [housing] slump looks set to unfold: Many more U.S. homeowners face the prospect of losing their homes this year as banks pick up the pace of foreclosures.” Thank the robosettlement, where in exchange for a few wrist slaps, contract law was thoroughly trampled by America’s attorneys general, but far more importantly to the country’s crony capitalist system, the foreclosure pipeline was once again unclogged, and whether one does or does not have a legal title on a given house, the banks are now fully in their right to foreclose on it. What this means also is that America’s record shadow housing inventory, which is far greater than any fabricated number the NAR reports on a monthly basis, is about to get unleashed on buyers, shifting the supply curve much further to the right, as up to 9 million new properties slowly but surely appear on the market. And while many will no longer be able to live mortgage free, forcing them to go out and rent (and no longer be able to afford incremental iGizmos), it also means that the prevalent price of homes is about to take another major tumble, making buffoons out of all those who, once again, called for a housing bottom in early 2012. Here’s the simple math: there will be no housing bottom until the 9 million excess homes clear.”
In their RECON report The Real Estate Center @ Texas A&M quotes The Dallas Morning News on apartment building investment in the DFW market:
“Apartment leasing in Dallas-Fort Worth dipped for the first time in over two years.
Net leases fell by 270 during first quarter 2012, with most of the declines occurring in the northern suburbs.
Greg Willett of apartment analyst MPF Research believes the slight dip is nothing to worry about.
“I don’t think one quarter of slight resident loss should be viewed as a big deal, especially when demand in first quarter usually is pretty mild anyway,” he said. “The job numbers still look good, and a comeback for the for-sale housing sector actually could drive them higher.”
Apartment investing is about where and when to buy properties; here’s 10 good ideas for the where part. Nice slide presentation via CNN/Money-
“Despite the housing bust and the recession, these 10 U.S. cities still managed to record population gains of 30% or more in the decade ending in 2010, according to the Census Bureau. The national average was less than 10% during that time.”
When it comes to apartment building investing one has to consider homeownership as competition for ‘our’ residents. But now in a post that’s part of his series on where the housing market stands today, Barry Ritholtz over at The Big Picture blog has this to say:
“There are many good reasons to believe that the 5.5 million foreclosures we have so far brings us only to the 5th inning of this real estate cycle. We are, in my best guess, barely halfway through the full course of foreclosures. By the time this entire unwind is complete, the United States may end up with a total of 8-10 million foreclosures.
Therein lay the Psychology factor. Once we begin to see an increase in foreclosures, the data is going to be far less accommodating. Monthly prices start falling, fear levels rise, and a viscous cycle could begin. Consider the recent college grads, who typically form each wave of first time buyers. From their perspectives, this whole housing thing must seem absurd. Their observations about home ownership is not the American Dream, but rather, a nightmare. Yale professor Robert Shiller worries that we have lost an entire generation of potential home buyers.” [Emphasis mine] BTW, Shiller is co-author of the Case-Shiller index, a measure of the state of the housing market. Continue reading Attention apartment investors: An entire generation has lost its interest in homeownership.
Marcus & Millichap’s latest report on Apartment Building Investment called “The Outlook” is just out today. In it they cover the usual national multifamily trends; rents up, vacancy down, economy slowly recovering, jobs growing but could be better. Then they take it a little deeper with these points (bel0w) then flesh it all out with charts demonstrating that things are really picking up for apartment building investors.
Here’s the exec sum:
Expanding Production Capacity Signals Stronger Job Creation.
Sustained employment growth underscores traction in the economy.
Apartment demand surges, completions sink to new lows, and a sweeping recovery matures into an expansion cycle.
Vacancy rates tighten across markets and asset classes, moving the sector into expansion.
Foreclosed homes and government-sponsored REO-to-Rental program offer rental alternatives to apartments.
Cap rate arbitrage and stabilizing operations create a compelling investment thesis for opportunistic and value-add strategies.
Life companies are increasing their lending on apartment building investments says MFE Magazine.
Life insurance companies upped the ante last year, processing apartment building investment loans hand over fist. And this year, most have increased their appetite and are charging through the first quarter at full speed, giving the government-sponsored enterprises (GSEs) a run for their money.
Most life companies today have the ability to be competitive with, and sometimes price inside of, the GSEs. This is particularly true for lower-leverage deals—and the most desirable assets.