Apartment Building 10yr Loan Rates: Is 4.5% The Lower Limit?

The apartment building investment loan rate we track was down to the high 4.5s the last couple weeks of August and clocked in today at 4.603%. The spread between it and the 10 year Treasury has been trending above the 120 day average for five weeks and I’ll have more on that below. The ULI <60LTV rate has been noisy and almost looks like it’s fighting to continue lower:

10 Year Treasury versus Apartment Building Loan Rates Sept 8 2014
Click for full size image.

While the ULI rate works its way south, it seems like 4.5% is the hard boundary for the Continue reading Apartment Building 10yr Loan Rates: Is 4.5% The Lower Limit?

Apartment Building, Commercial and Residential Real Estate state of the market video from Tom Barrack of Colony.

Tom Barrack was on CNBC last week to talk about real estate with the traders. Great TB quote to open the show: “It’s always great to be the slowest guy on Fast Money”. There’s more wisdom in that statement than any of the show’s regulars understood.

A couple bullet points but definitely worth watching the video. The link on the image below goes to the Colony website where they edited the three segments together (commercial free too):

  • Housing [of all types] is the best opportunity. Today there might be a Fed bubble but there isn’t a housing bubble.
  • The rise in interest rates while not big and still low historically speaking, will hit entry level housing. 100bp (basis point, where 100bp = 1%) rise in interest rates will cost a borrower an extra $150+/- a month on their mortgage payment for a $200,000 home. That will keep more people renting.
Apartment Building Investment and single family
Click on the image to go to the Colony website video (no commercials)

What do I do with my retirement money, one investor’s answer (with charts). Think apartment building investment-

Good charts on long term returns in this piece from Glenn R Mueller, PhD.:

I recently met with my financial advisor to “rebalance” my … retirement portfolio. Based on my “age and stage of life” his allocation model showed a 50% bond allocation. I laughed and asked him if the company allocation model assumed interest rates would rise over the next 10 years? His answer was “yes- of course.” I showed him the graph below which shows lower than average TOTAL returns in a rising interest rate environment and he checked his long-term data and found that bond holders between 1953 and 1980 had actually lost money. We all know that as interest rates rise, bond values decline and thus the total return can be small or negative. Not to mention that a 10-year treasury at 1.5% is below expected inflation and thus a NEGATIVE REAL RETURN. He agreed that a bond allocation did not make much sense, but since my investor profile was conservative what was the alternative?

Apartment building investments outperform bonds in rising interest rate environments

Dr. Mueller is Continue reading What do I do with my retirement money, one investor’s answer (with charts). Think apartment building investment-

Fannie, Freddie and Ginnie do $13.5B in apartment investment lending biz during Q1, +81% YoY.

Bonds backed by Fannie Mae and Freddie Mac tied to apartment investments soared to a record as the government-supported mortgage companies made low-cost loans on rental properties amid a continued slide in home values. Fannie Mae, Freddie Mac and Ginnie Mae sold $13.5 billion of securities tied to apartment buildings in the first quarter of 2012, an 81 percent increase from the year-earlier period and up from $5.2 billion issued in all of 2008, according to data compiled by Bloomberg. It’s the highest quarterly issuance since records began in 1993.

Apartment Building Investment Loans from Freddie, Fannie and Ginnie

The interest rate for a 10-year, fixed multifamily loan Continue reading Fannie, Freddie and Ginnie do $13.5B in apartment investment lending biz during Q1, +81% YoY.

The Goldman Rule: You might just be a muppet if….

… your advisor works for a vampire squid or is paid on commission. Click here to see the article from Time/Moneyland

For extra credit see: Why Wall Street Hates the Lazy Portfolios Strategy

“America’s investors have been ripped off as massively as a bank being held up by a guy with a gun and a mask,” former Securities and Exchange Commission Chairman Arthur Levitt warned in an article in Fortune magazine a decade ago. That same year in his classic “Take On The Street,” Levitt lambasted the fund industry as “a culture that thrives on hype … withholds important information,” a “cutthroat business” that “misleads investors.” Today, it’s worse.

Kind of a No Duh, but study shows that commissioned ‘advisors’ may give self-interested ‘advice’.

In “The Market for Financial Advice: An Audit Study” The authors share their findings that financial advisors who are paid on commission may color their recommendations to increase their compensation to the detriment of their clients. This is something that lead to the creation of the field of financial planning, that I played a small part of back in the eighties.

The original idea was that financial planners would be represent the client’s interests in executing a financial plan designed to achieve the client’s goals such as retirement, educating children, reducing taxes and preserving their estate for heirs and charitable beneficiaries. This was in opposition to the typical situation where a person seeking to secure their financial future was subjected to Continue reading Kind of a No Duh, but study shows that commissioned ‘advisors’ may give self-interested ‘advice’.

What do these Niche Multifamily Teams know about battling the big guys (and winning) with Apartment Building Investment?

Great MFE article on apartment building investment  niche strategies from teams who battle the big guys and win. Five different teams and strategies are profiled and they all have something to teach but I wanted to highlight one company whose strategy is very similar to ours. Here’s my exec sum in bluue:

LumaCorps Apartment Building Investment Strategy

LumaCorp. quietly owns and operates a 4,800-unit portfolio of 1980s, Class B properties managed to meet the needs of working-class renters.

These [renters] historically can’t buy a house, but they still want clean, quality, safe housing. We think it’s a much bigger slice of the market than other renter demographics.

Rent growth can be modest, but that’s OK. One of the advantages of owning property in small tertiary markets is that they are less active [in terms of new construction and competition, the rent growth is more predictable.LumaCorps Apartment Building Investment Strategy

LumaCorp. begins with old-fashioned real estate research, looking for distressed or underperforming working-class properties with potential. “We make money by fixing problems.”

But the firm isn’t interested in just any Class B property with deferred maintenance and an attractive price.

We’re very picky about the properties we acquire

We know our market very well, and we know what works in terms of floor plans, unit mix, and architectural designs.

We pick a property with good bones, and then we invest the money to bring it up to our standards.

LumaCorp. runs some of the tighter costs, yet when you drive up to the property, it always looks terrific. Some multifamily firms spend lots of money, and their properties still look tired.

Only a few properties will make the cut for the LumaCorp. treatment. We might look at 100 packages. Out of that, we’ll find 20 worth looking at, and 10 will get offers. One might get done,” says Kelly, who made “a couple dozen offers” in 2011 and got one—Bardin Oaks in Arlington, Texas.

See the whole MFE Mag article here: Niche Guys Win


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.

Seattle Area Apartment Building Investment

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.

Where is Your Multifamily Market In The Cycle? Nice interactive map. Via @UrbanLandInst

Is Apartment Building Investment in the up cycle in your market? Job growth is the most important leading indicator of the market cycle. Check out the cool interactive map through Q4 2011 from The Atlantic here: MetroMonitor Economic Performance Maps

Apartment Building Investment Cycle Map

Is a Gold Standard the Answer to Our Monetary Crack-Up?

My brother Tom shared an article from the Cato Institute entitled: “Why Gold-Defined Money Is the Answer to Our Monetary Crack-Up”.

I agree with the writer in theory but as Yogi Berra said: In theory, there is no difference between theory and practice. In practice, there is. A couple points:

With a fixed currency like a gold standard innovation and value creation that grows the economy will be constrained and what growth does occur will cause prices to fall, hurting the producers of goods and limiting real returns to their investors. There has to be some mechanism to grow money supply at the approximate rate of real growth in the economy.

The real problems we’re facing around the world are from excess leverage and at the end of every debt binge the unwinding happens in three ways.  Debt creation can be reduced and austerity can be imposed to make room for Continue reading Is a Gold Standard the Answer to Our Monetary Crack-Up?