How much to budget for apartment building Capital Expenses? Many smaller properties spend up to 2x more

Mike Scott of apartment research firm Dupre+Scott has some shocking news for apartment building investors. While most lenders require a minimum reserve of $250 per unit per year for capital expenses and many owners reserve up to 400, according to actual expense budgets Mike tracked for properties in the Seattle area actual capital expenses have been averaging $750 a year for the last dozen years and the trend is definitely up:

Apartment Building Capital Expense Budgets vs Actual

These are actual CapEx expenses from actual properties and while they definitely vary from market to market, the cognitive error is probably about the same everywhere. Some investors may say well we only buy newer properties so that we don’t have CapEx to worry about. Unfortunately their research shows that even Continue reading How much to budget for apartment building Capital Expenses? Many smaller properties spend up to 2x more

Who is buying all those properties and what does it mean for the apartment building investment cycle?

Mark Hickey of CoStar put out a piece looking at who was responsible for the near record $65.8B of apartment building investment in 2012. CoStar’s numbers show that private owners/developers did just about half of all acquisitions last year and institutions were in for 12%, both near their recent trends. REITs on the other hand increased their share by a third, responsible for 12% of sales volume last year.

Interestingly the sellers were pretty much the same groups, except REITs who were the largest net buyers last year.

Apartment Building Investment by REITs 2004 to 2012

Last year REITs raised 15x the equity they did in 2008 (and 20x the total capital). Up against pockets that deep Continue reading Who is buying all those properties and what does it mean for the apartment building investment cycle?

ULI Biz Barometer: Apartment building invesment sales vaulted last month, bouyed otherwise sagging #CRE sector.

The Urban Land Institute’s April Real Estate Business Barometer reports that apartment building investment sales were strong enough to pull the entire sector up from last month’s slump while CRE prices are at four year highs.  Condominium sales are also at a 5-1/2 year high with strongly increasing prices.

Apartment Building Investment and Commercial Property Sales April 2013

“Overall, 65 percent of the key Continue reading ULI Biz Barometer: Apartment building invesment sales vaulted last month, bouyed otherwise sagging #CRE sector.

Single-Family Rentals Only Marginally Impact Apartment Building Investments PNC EVP says. Video via Globe St.

Scott Bassin, EVP and head of multifamily for PNC Real Estate says single family rentals will only marginally impact apartment building investment because there is a certain group of people who want or need single family homes, and everyone else. See his comments in the Globe St. video from the NMHC Apartment Strategies Conference in Palm Springs.

Single Family Rentals only have small impact on Apartment Building Investment
Scott Bassin, EVP at PNC with Globe St. in Palm Springs

 

Top US Cities for Job and Apartment Building Investment Revenue Growth Charted. Axiometrics via MFE Mag

MFE Apartment Trends posted an Axiometrics chart of the top US cities for job growth and apartment revenue growth for 2013:

Apartment Building Investment Revenue and Job Growth 2013 Continue reading Top US Cities for Job and Apartment Building Investment Revenue Growth Charted. Axiometrics via MFE Mag

Rent Vs. Buy And The Great Myth of Homeownership as an ‘Investment’

Renting vs. Buying debunks the myth of home ownership as an investment

There have been a number of reports recently claiming that renting is more expensive than buying a house. This is a great thing as everyone involved in selling, building and financing houses would tell you, especially if it were true. Unfortunately it is not for a variety of reasons, one of them being that owning the home you live in just isn’t that good of an investment, but we’ll get to that in a moment.

The first hurdle is the challenge of amassing the 20% down payment. On the average US home price of $242,300 the downpayment would be $48,460. That is essentially one whole year’s worth of the US median income of $51,413, so the question is how long would it take someone to save that much? This question is nearly always ignored in these comparisons. But say we all have a rich relative who leaves us the downpayment in their will, it’s all good after that right?

monthly rent vs. mortgage payment not a good comparison of the true costs

Some of these type of reports simply compare the average local rent to the mortgage payment for the area’s average home and therefore can be discounted out of hand. Others include taxes and insurance which is slightly better but they are still missing a very big piece of the cost of owning and operating a home; repairs and maintenance. Continue reading Rent Vs. Buy And The Great Myth of Homeownership as an ‘Investment’

What’s not to like about the Seattle and Portland Apartment Building Investment Markets?

“Even compared to a healthy and expanding nationwide market, multifamily in the Pacific Northwest is seeing exceptionally strong gains. A growing renter population and accelerating job growth have helped solidify cities like Portland and Seattle as cornerstones of the apartment industry, and the positive trends show no sign of letting up.” So begins a glowing report in the latest digital edition of MHN Magazine (On page 22). What’s not to like about an article like that, especially one with a cover shot as beautiful as the one in this article? Below is just a portion of it and Photoshopped or not it is something to behold.

The glowing words and photos are accompanied with a pretty good looking chart too, showing the declining vacancy and rising rents in those two markets as well: Continue reading What’s not to like about the Seattle and Portland Apartment Building Investment Markets?

Q3 Apartment Building Investment Reports Now Available From Marcus & Millichap

M&M covers 39 major apartment building investment markets in the US and have just published their Q3 reports. Here’s a list of the metros they cover:

Marcus & Millichap Q3 2012 Apartment Building Investment Market ReportsThey also provide snapshots of the Office, Industrial, Retail and Self-storage sectors in many of those markets, accessible from the tabs on the page. Note this information requires registration at the website to view.

How to Structure Apartment Building Investment Partnerships by Brian Ward of TCG Capital.

MHN Online has a nice piece out this morning talking about what institutional and private equity equity providers are looking for in their apartment building investment deals. According to Brian Ward, CIO of TCG Capital Markets, the requirements are much tighter than just a few years ago. Here are the high points:

  • Align the style and needs of the capital source with the operator. A long term operator shouldn’t be matched up with private equity that needs short term holds to clear their return hurdles.
  • Equity capital today generally comes in two two types: preferred equity or joint venture (See the table linked in the article for a good breakout of when to use each).
  • Blind pools are very difficult to get funded today —even the best and most sophisticated operators have had trouble executing this type of equity raise.
  • There must be local knowledge on the management team, both lenders and investors want their operators close by.
  • Operators must have Continue reading How to Structure Apartment Building Investment Partnerships by Brian Ward of TCG Capital.

The 3 Most Important Things You Need To Get an Apartment Building Investment Loan

ALB Commercial Capital has a nice guide for small balance (<$5 million) apartment building investment loans. In it they cover the three most important ratios investors have to clear in order to get a deal funded:

The 3 most important things to get an apartment building investment loan approved

 

  1. Loan-To-Value Ratio (LTV) = Total loan balances (1st mtg + 2nd mtg) / Fair market value (as determined by appraisal). For Multifamily mortgages, LTVs seldom exceed 80%.
  2. Debt Service Coverage Ratio (DSCR, aka DCR, DSR) = Net Operating Income / Debt Service. Most lenders insist that this ratio exceed 1.2 with a few a allowing 1.15.
  3. Personal Debt Coverage Ratio (PDCR) = Monthly Personal Debt / Monthly Personal Income. The Personal Debt Ratio compares the amount of bills that the borrower must pay each month to the amount of income they earn. Personal Debt Ratios seldom are allowed to exceed 50% in practice.

In addition the guide covers other items that need to be addressed such as Continue reading The 3 Most Important Things You Need To Get an Apartment Building Investment Loan