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 proprietary 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?

ULI raises Commercial Real Estate price growth forecast including apartment buildings

The latest ULI/EY (Urban Land Institute/Ernst & Young) Commercial and Apartment forecast shows that respondents expect price growth to slow during the next three years but they expect better growth than when queried in April this year:

Commercial Real Estate price forecast raised ULI

Back in Q2 the economists and real estate pros thought prices would appreciate 7% this year and 5.7% in both 2015 and 2016. Now they expect 10% growth this year and 5.7% next year falling to 5% the year after. These kinds of surveys and charts usually set off all kinds of behavioral economics warning bells in my head but I’ll let you be the judge… The web piece is here, the full report here.

That said, this  chart probably is the clearest depiction of how the statistician drowned in water that averaged only three feet deep. What happened to those deals underwritten with the average growth number when 2008 and 2009 came along? To avoid this fate I highly recommend reading Sam Savage’s The Flaw of Averages: Why We Underestimate Risk in the Face of Uncertainty (http://amzn.to/PKIaOc on Amazon)

Opportunities For Real Estate Investment Today by Tom Barrack of Colony Capital

Tom Barrack over at Colony Capital put up a nice presentation of where he sees the opportunities for real estate investment in the current market. While Colony is geared to serving their large institutional investors, those of us operating on a smaller scale can benefit from Tom’s insights as well.

My Exec Sum of the opportunities he sees that I think will impact smaller investors in North America (and my comments in parentheses):

  • Commercial and residential real estate are great investments today because equities and debt are mispriced and the economy is regaining its feet. (There will be competition however).
  • Distressed debt in the US is diminishing but they are continuing to resolve non-performing assets (which can create deals for long term holders as these turned around assets come back to the market).
  • Single family residential for rent housing is stabilizing and becoming a institutional asset class (which can provide exits for those who have built portfolios of these properties).
  • Mezzanine debt and what he calls ‘stretched senior debt’ is becoming more available for value add & opportunistic deals because institutional investors such as pension funds need the extra yield (it will be easier to finance turnaround commercial properties at higher LTVs).
Investment opportunities for commercial real estate investors in North America
Source: Tom Barrack at Colony Capital

Ashworth Partners Blog named a top Commercial Real Estate blog- Grateful

The Real Estate Investment site biggerpockets.com has named our apartment building investment blog one of the top commercial real estate blogs for the second year running. We are honored and thankful to be included with the CRE blogs named to the list: A Student of the Real Estate Game, Llenrock Blog and The Tenant Advisor.

Biggerpockets began publishing their top 35 List of Real Estate Blogs in 2006 and the list has generated over 100,000 views. Only ten of the original honorees still remain on the list, a statement to the hard work involved in building and maintaining a good blog and surviving tough times in the market.

At Ashworth Partners we’ll keep doing what we can to make sure the valuable time you spend here is well invested. We don’t have all the answers though so if you have a suggestion or comment about how to improve the blog we appreciate your feedback.

The One Shoe That Didn’t Drop in The Financial Collapse- Commercial Mortgage-Backed Securities. #CRE

Heidi N. Moore was talking with a investor who specializes in buying distressed commercial mortgage-backed securities (CMBS) and I was reminded of something Warren Buffett said back in 2007:

“When people start dropping shoes you really don’t know whether they’re a one-legged guy or a centipede.”

The investor was saying that the commercial real estate (CRE) market has been under the same pressure as the housing market but the CRE market hasn’t crashed. Why hasn’t that shoe dropped… and why won’t it?

Banks avoided writing down commercial mortgages by renegotiating with their borrowers

The investor said that CRE was “rife with all the same corruption as the housing market: banks didn’t do their homework before signing loans, ratings agencies were overly generous in classifying weak loans as strong, but when it came [time] to mark down the value of the struggling commercial real-estate loans, many banks simply refused. They inflated the values of the loans to make their balance sheets look good.” [And therefore could keep all their bailout funds at work speculating in derivatives and jacking their bonuses instead of being set aside to cover losses.]

There are two other reasons that the CRE market and the CMBS tied to it didn’t crash: 0% interest rates, which means commercial borrowers weren’t punished with higher interest payments; and more importantly Continue reading The One Shoe That Didn’t Drop in The Financial Collapse- Commercial Mortgage-Backed Securities. #CRE

Commercial Real Estate added $260 Billion to GDP last year- Hessam Nadji video via Marcus & Millichap

See the video here: http://bit.ly/JpqMck Sorry, couldn’t figure out how to load their video directly into this post. Any suggestions? Thanks.

The 10 Commandments of Network Building by Duke Long

Duke is one of the top thought leaders on how commercial real estate (CRE) and online social networking should work together… and where they don’t. HE posted this on his blog 10 Real World Examples of How I Built My Commercial Real Estate Network and in an ironically karmic sort of way I just saw it on Klout’s homepage today. It is so good and to the point in true Duke style that it would be a great guest post. I believe these steps work online and off, in CRE or any other industry so take it away Duke:

Duke Long commercial real estate investments

1.What are the relevant commercial real estate communities of interest?  What are the needs wants of the participants within these communities?

I started simply looking for the groups and associations that I already had and affiliation with. My state commercial board.  NAR because I had already made several connections over the years. CCIM,SIOR,IREM,BOMA etc. Why connect? Hell, why go to the meetings and get on the conference calls, why volunteer? I needed build and cultivate a network. Online connection was a revelation. I would listen learn and ask simple questions. The needs and wants were pretty obvious.People wanted to connect to make deals. But then something interesting started to happen.Human interaction.

2.Participate where your presence is advantageous and mandatory, don’t just participate anywhere and everywhere or solely in your own domains (Facebook,LinkedIN, Twitter conversations related to your brand, etc.)

Seems pretty obvious does it not? Let me give you and example. I do everything in my power to eliminate and and all feeds emails discussions and spam from lenders. You say What? We need that lender connection. Not me. All and I mean all they do is spam and pitch. How does this help me or my clients. You would think lenders pitching brokers is a natural fit. Wrong. Go find the client before they get to me and leave me the hell alone. The “we only are taking clients in the 30-75 mil bracket ” pitch is total bullshit. So, your are in commercial real estate who and where should you be ? Start-ups, Logistics Companies, Medical Associations,Industrial Data Centers…let your brain flow.Maybe some other brokers also they need to know what your stuff is but not in a spammy way!

3. Determine the identity, character, and personality of your Continue reading The 10 Commandments of Network Building by Duke Long

Why now is the right time for CRE and Apartment Building Investment. Video via Tom Barrack at Colony Capital

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 contrarian testosterone as he puts it (in other words you are a true value investor). See also my notes below with the exec sum in bold.

1st Video:

Tom Barrack on Commercial Real Estate and Apartment Building Investment

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.

Overall in the US

Where I think we are is actually a great Continue reading Why now is the right time for CRE and Apartment Building Investment. Video via Tom Barrack at Colony Capital