Ashworth Partners

Apartment Building Investment Loan Rate Continues Its Steady State

The apartment building investment loan rate we track remains at 4.375% where it landed back in the middle of January. Other than a brief one-week visit to 3.396% back in March which wasn’t even enough to move the chart line it’s been steady as she goes:

Apartment Building Investment Loan Rate April 2015 — Click on image for full size

With the 10year Treasury dipping below 2% the spread has been widening as 4.375% seems to be the new 4.5%. Once again people are expecting rates to go up later in the year (is this the third or fourth year for that prediction?) but the Fed and the Government have been following the Japanese model step for step and their Ushinawareta Jūnen (Lost Decade) is old enough to drink and will be graduating college soon. I’m not sure why anyone thinks this time will be different just because we’re talking dollars instead of Yen. But there is this:

That men do not learn very much from the lessons of history is the most important of all lessons that history has to teach. – Aldous Huxley

In other news Susan Persin, Senior Director of Research at Trepp has Continue reading Apartment Building Investment Loan Rate Continues Its Steady State

46% of US Homeowners with a Mortgage are Frozen and Can’t Afford to Move

Was looking at some data from Zillow that indicates about 17% of US homes with a mortgage remain under water:

LTV dist of US homeowners with mort — Click on images for full size. Source: Zillow

Bad enough but the reality is that a much larger portion are effectively frozen in their homes: They can’t sell and net enough money to make the downpayment on a similar size home, forget about actually moving up:

That’s more than 46% Continue reading 46% of US Homeowners with a Mortgage are Frozen and Can’t Afford to Move

10 Year Apartment Building Investment Loan Rate Drops Another 6 Basis Points Today

The 10 year fixed rate apartment building investment loan we track fell 6 basis points (bp) to 4.369% today. (See loan details below):

10 year Treasury vs. Apartment Building Investment Loan Rate — Click on image for full size

That drop doesn’t show up on the chart very well but it’s the first change in the rate since the middle of January when it had been flatlining at 4.5% since the end of November. Meanwhile the T10 (10yr. Treasury) had been working its way higher since hitting 1.68% in the end of January which in turn has been reducing the spread between the two rates from the 2.5% range down below 2.25% and coming in to 2.169 today. I expect the Continue reading 10 Year Apartment Building Investment Loan Rate Drops Another 6 Basis Points Today

UPDATED: The Apartment Market Cycle Peak Is Here, It’s Just Not Evenly Distributed Yet

Apartment Building Investment Cycle with Expanded Peak — How I Learned to Stop Worrying and Love The… Low Cap Rates. Click on image for full size.

Was quoted in a Multifamily Executive piece this week by Joe Bousquin Cap Rate Limbo: How Low Can They Go? discussing where we are in the apartment building investment cycle, whether multifamily cap rates could go any lower and how do you make a deal pencil in this environment. It’s a good quick read with apartment pros from around the country sharing their thoughts on how things stand. I really got a kick out of the Barbara Gaffen’s story about a Chicago property trading for $651,000 a unit.

Here are the rest of my comments:

The market cycle peak is here, it’s just not evenly distributed. Cycle tops (in the absence of a financial meltdown) tend to be rounded and therefore very hard to call. We’re focused Continue reading UPDATED: The Apartment Market Cycle Peak Is Here, It’s Just Not Evenly Distributed Yet

10 Year Apartment Building Investment Loan Rate Now Below 4.5% on Falling Treasury

After flatlining at 4.5% for over 10 weeks, the 1oyr apartment building investment loan rate we track dropped to 4.375% in the middle of January and has remained there since:

All this while the 10 year Treasury (T10) got within 2bp of the 1.66 posted back in May of 2013, causing the spread to widen to the two and a half range from two and a quarter. That in turn is causing the trailing 6 month average to continue its upward curve, now in the 2.25 range.

One other bit of news is that the 15 year am & term loan that we track got to 4.5% about the same time as the 10 year loan only it hasn’t fallen since then. Still if you have a property you want to hold for the long term that will support the higher debt service of the 15 year amortization, 4.5% is a pretty nice rate. Plus if you Continue reading 10 Year Apartment Building Investment Loan Rate Now Below 4.5% on Falling Treasury

3 Things I Learned Charting Apartment Building & Commercial Real Estate Market Cycles

Seattle’s Strange Trip Through the Apartment Building Investment Cycle Part II

In part I we saw that some of the most widely followed market cycle research can’t be relied on without question. If knowing where we are in the market cycle is the most important thing (and not everyone agrees, see the comments from one of my private equity guys about that under part I here) then the best solution is probably to chart the cycles for the markets we’re investing in ourselves. If you’re in multiple CRE sectors in a lot of markets hopefully you have someone on your team or can hire a consultant (like Ashworth) to chart those cycles.

SEA occupancy v cycle position WTH — Click on images for full size.

Building our own CRE market cycle chart

To track a cycle for one market and sector we only need to answer five questions according to Professor Mueller’s methodology: Market occupancy, the 30 year Long Term Average (LTA) occupancy, rent growth, inflation and new unit construction. Later we’ll look at whether we can Continue reading 3 Things I Learned Charting Apartment Building & Commercial Real Estate Market Cycles

Widely Followed Apartment Market Cycle Research Misses Widely

The Strange Tale of the Seattle Apartment Building Investment Cycle and Maybe Yours Too.

Back in 2012 it appeared that Seattle’s movement through the real estate cycle was stalling out. Not the actual market by any stretch of the imagination but instead where it was placed on the apartment market cycle charts in the Cycle Monitor report from Dividend Capital Research. These quarterly reports on the real estate market cycles for the five main Commercial Real Estate (CRE) sectors in more than fifty markets around the US were widely followed but something was wrong.

Seattle apartment occupancy vs. Cycle Monitor Market Position 2005 - 2014 — Click on images for full size.

Why this up to date market data is vitally important to your investment success:

You can fix a property but not a market cycle. Knowing where a market is in its cycle is critical for investors seeking to buy low and sell high. If signals are a year or more behind, prime opportunities will be missed to Continue reading Widely Followed Apartment Market Cycle Research Misses Widely

Do You Know Where Your Apartment Market Is Right Now?

…In its investment cycle?

Well Integra Realty Resources (IRR) is just out with their 2015 Viewpoint Report covering where they think things are and where they might be headed in the five major sectors of Commercial Real Estate (CRE); office, industrial, retail, multifamily and hospitality… as well as a bonus piece on self-storage. IRR is one of the largest independent commercial real estate appraisal firms in the U.S and this is their 25th annual IRR Viewpoint in the fifteen year history of the company according to their chairman in his introduction. Not sure on the math there but I do have their reports going back to 2002.

In the report they cover cap rates, going-in cap rates, discount rates, yields, reversion rates and much more but the first thing I look at is their market cycle chart for the multifamily sector:

IRR Apartment Building Investment Cycle Chart Integra Realty Resources — Click on image for full size. Source: Integra Realty Resources

So IRR has an idea of where your apartment market is, provided your market is in one of the sixty plus places where they have an office. The big question is do you agree with their placement? It is very important to review the data and form your own idea on this because there are good reasons to doubt Continue reading Do You Know Where Your Apartment Market Is Right Now?

Apartment Loan Spread Spikes as Rate Flatlines In Face of Falling Treasuries

Once again apartment building investment loan rates have hit the hard boundary of 4.5% even while the 10yr Treasury (T10) falls back below 2% for the first time since May 2013. This is causing the 120 day average spread to begin bending upwards. Currently it’s 2.178% on the back of a 2.46% weekly spread as of Monday when the T10 was passing through 2.04% on its way to 1.96% yesterday:

Apartment Building Investment Loan Rates vs 10 year Treasury — Click on image for full size.

The ULI <60 LTV rate has been bouncing in the 3.5-3.6% range but that’s a function of it being quoted on a spread basis and the only change there since the middle of November was when it dropped 1 basis point (1bp) in the middle of December; chalk it up to holiday season hibernation.

It really looks like The Great Columbus Day Apartment Loan Rate Massacre was the Continue reading Apartment Loan Spread Spikes as Rate Flatlines In Face of Falling Treasuries

Spreads Widen on 10 Year Apartment Investment Loan Rate, Trend or Seasonal?

The 10 year apartment building investment loan rate we track has returned to its old boundary of four and a half percent despite Treasuries in the two and teens again at the end of November. On the 28th the T10 was within 1pb of the mid-October Massacre low of 2.17. Something had to give for the loan rate to get back to the 4.5% range and it was the spread which jumped above 2.25 last week for the first time since February:

The spread has gone from the Massacre low of 1.93 to 2.28, a 35bp climb in only seven weeks. Meanwhile the ULI <60%LTV last week was 3bps below its mid-October low, tracking the Treasury with a consistent spread of 1.38 in four of the last five weeks.

It’s interesting that the spread plunged Continue reading Spreads Widen on 10 Year Apartment Investment Loan Rate, Trend or Seasonal?