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:

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%.
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.
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

Is the Decline in Cap Rates Coming to an End for Apartment Building Investments?

In a piece just out today from Reis Reports says that: “We have seen declining cap rates fueled by a variety of key factors such as declining interest rates, risk-aversion in the wake of the recession with investors training their sights on what they perceive to be a less-risky property type, and the improvement in property fundamentals, especially in the apartment sector.”

Cap rate stabilizing for apartment building investments

But: “With the sale of high-quality assets dominating the marketplace, this has fueled the ongoing disconnect in pricing between buyers and sellers, preventing many assets that are not of the highest quality from trading. With sellers taking their cues from current market statistics, they are being relatively aggressive regarding the prices that they are willing to accept to consummate a transaction. However, frustrated buyers feel that many assets should not command the same premium that the highest-quality assets currently command in the market and consequently buyers are unwilling to pay such vertiginous prices.”

What are you seeing in your markets?

Two Key Factors for Apartment Building Investment Growth.

1) The availability of attractive financing. Plus, the spread between fixed-rate financing and actual year one cap rates is certainly the widest that it’s been in recent history, perhaps ever. (There’s rumor that there was a bigger spread during the Roman Empire, but that may just be an old wives’ tale.)

From a macro perspective, the spreads between the treasury indexes and the premium on multifamily interest rates will almost certainly widen in the near term, but cap rates should remain stable in Class-C properties. They will probably continue to compress to a certain degree for Class-B assets.

2) Job growth Continue reading Two Key Factors for Apartment Building Investment Growth.

Will REO-rentals Really Compete With Apartment Building Investments?

Greg Willett, VP of research over at Real Page wrote a nice piece on that which covers it nicely; take it away Greg:

Thanks to one sentence uttered by Warren Buffett and some major overplay by the media, single-family rentals are a hot investment choice now. Thus, the analysts at MPF Research are fielding a constant stream of inquiries about whether the bulk sale of bank-owned single-family homes to investors who will operate them as rentals will impact the apartment sector.

Our take is that Continue reading Will REO-rentals Really Compete With Apartment Building Investments?

Clash of housing bottom fairy tales: Big Bad Wolves v. Robin Hood Investors.

My friend and fellow real estate investor Mei was asking about competition for single family REOs from big institutional players buying them at the courthouse as in the Bloomberg article here. The article profiles Waypoint, a Southern California real estate investing outfit that has developed some great technology to facilitate buying and leasing REOs. Check out Waypoint’s website, it’s the best example I’ve seen of the lease/option, credit repair, rent-to-own strategy for real estate investors.

It is a great question and one that I’d been wondering about too. Just so happens I was meeting with one of my private equity clients last week and we had a long conversation about that very subject. My client is the real estate/mortgage specialist at a 50B firm and they’ve been trying to crack this market profitably for about a year. Here’s the bottom line: Private equity needs to earn Continue reading Clash of housing bottom fairy tales: Big Bad Wolves v. Robin Hood Investors.

Portland OR Q1 Apartment Building Investments Now Posted.

Here are some interesting transaction statistics for 1st Quarter apartment building investment transactions:

Average price per unit was up 11% from Q1 2011
6.86% was the average cap rate, vs. 7.07% in 2011
77% of properties sold had between 5-50 units

Click on the image to see the list of Q1 apartment building investment sales in Portland:

For more on PDX apartment building investment see City Rents Rise As Buyers Wait Out Housing Bust from Joseph Bernard Investment Real Estate.

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 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

Is the Dallas/Fort Worth Apartment Building Investment Cycle Peaking or just taking a breather?

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.

Apartment Building Invesment Cycle peaking in Dallas?

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.”

The North Texas area has added about Continue reading Is the Dallas/Fort Worth Apartment Building Investment Cycle Peaking or just taking a breather?

Pathfinder Buys REO Multifamily Complex Near Seattle for $5.1M Via MHN Online. 78 units @ $65.4k+/unit

San Diego-based Pathfinder Partners LLC makes Apartment Building Investment in Seattle area.

San Diego-based Pathfinder Partners LLC has acquired the View at Redondo, a 78-unit apartment property in Federal Way, south of Seattle. The apartment complex, built on a …. [Cut to the chase]

Key Concept:

“We believe there are opportunities throughout the major markets in the western United States to invest capital in high-quality projects with distressed or fatigued ownership that will result in significant returns,” Lorne Polger, senior managing director of Pathfinder Partners, tells MHN. “To that end, Pathfinder focuses on smaller apartment building investment, sized below the radar of the largest institutional buyers.”

The company’s strategy, Polger adds, is to buy the loan on a small property that needs finishing, has a large vacancy, or is beset by other issues. “These are typically transactions that need to be concluded very quickly, on an all-cash basis,” he says. “We have a track record of closing this type of deal in 15 to 20 days, and frequently get the call when a financial institution is seeking to conclude a challenging deal quickly.”

A very good strategy indeed.

Seattle Multifamily Vacancy at 4.2% Says Dupre + Scott, average rents over $1,500 too.

For more on the Seattle area apartment building investment climate see the Seattle Times article here: Apartment rents likely to keep rising through 2012

Hat tip: Paul McFadden