Developer Bob Hall got his start buying an old building in a deteriorating downtown to house his import business. He didn’t know about due diligence, deferred maintenance or building codes and after having to refinance then sell his house to fund the required repairs swore he’d never buy another building… until he looked at his tax return. He was making more money renting out the extra space than the import business was pulling in… and he was hooked.
It Is All About the Dogs for apartment building investment according to industry insiders speaking at a recent Bisnow conference: Woodbranch Management President Philip Schneidau says Market Square’s dog run was the best thing about the project. (The second-best part is the building’s liquor license. “What happens is you get home from work, walk your dog, grab a bottle of wine and meet your neighbors,” Schneidau said. “It’s a great life. That’s the magic.”)
Here’s my Exec sum of their salient points:
Households with at least one pet jumped 35% during last decade to 74.1 million
Dogs are the favorite pet, with 43.3 million
Dog ownership surging among singles and renters.
The Competitive Situation:
Being pet-friendly has shifted from competitive advantage to
Recently I was watching the Harvard Joint Center on Housing’s State of the Nation’s Housing panel discussion which coincided with the release of their annual housing report. On the panel were Terri Ludwig, Enterprise Community Partners CEO; Mayor Catherine E. Pugh of Baltimore as well as Robert C. Kettler, Chairman & CEO, Kettler, a large East Coast developer of tax credit and market rate housing. I thought this particular panel couldn’t have been put together randomly.
The 10yr apartment loan rate we track rose 12 basis points (bp) to 4.60% from 4.48%, where is was on our report last month. During the same period the 10yr Treasury (T10) rose from 2.21% last month to a high of 2.39% last week before backing off 2bp as of yesterday. What saved the apartment rate from rising 50% further alongside the T10 was that the spread was reduced from a high of 2.9% to 2.22%.
Quote: “[A] very active market that continues to give strong weighting to underlying land value and potential future use, even if this use is far off in the future.” – James Glen, VP, Colliers Vancouver, BC [Emphasis mine]
Any time you see future and potential in the same sentence referring to real estate, watch out…
Oh and another sign is when the average cap rate for a low-rise apartment deal is 3% while high-rises are at 2.5! Just for reference, a 2.5 cap is the equivalent of a 40x multiple (aka PE or Price Earnings Ratio) on a stock meaning that it would take 40 years of earnings (NOI in the case of real estate) to repay the purchase price and that is definitely “far off in the future“.