Fannie, Freddie and Ginnie do $13.5B in apartment investment lending biz during Q1, +81% YoY.
Filed under: Multifamily Investments, The Economy and Current Affairs
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.
The interest rate for a 10-year, fixed multifamily loan Read more
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 Read more
What do these Niche Multifamily Teams know about battling the big guys (and winning) with Apartment Building Investment?
Filed under: Commercial Real Estate, Multifamily Investments
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.
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
Filed under: Commercial Real Estate, Multifamily Investments
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.
Where is Your Multifamily Market In The Cycle? Nice interactive map. Via @UrbanLandInst
Filed under: Multifamily Investments, The Economy and Current Affairs
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
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 Read more
Leading Indicators and the Risk of a Blindside Recession. In-depth on economic indicators from John Hussman
Over the past few weeks, investors used to setting their economic expectations based on a “stream of anecdotes” approach have seen their economic views evolve roughly as follows:
“After a brief ‘scare’ during the third quarter, economic reports have come in better than expectations for weeks – a sign that the economy is on a gradual but predictable growth path; Purchasing managers reports out of China and Europe have firmed, and the U.S. Purchasing Managers Indices have advanced, albeit in the low 50′s, but confirming a favorable positive trend, and indicating that the U.S. is strong enough to pull the global economy back to a growth path, or at least sidestep any downturn…”
“Unfortunately, in all of these cases, the inference being drawn from these data points is not supported by the data set of economic evidence that is presently available, which is instead historically associated with a much more difficult outcome. Specifically, the data set continues to imply a nearly immediate global economic downturn… Frankly, I’ll be surprised if the U.S. gets through the first quarter without a downturn.” (Underlining mine)
Definitely worth a careful read: http://bit.ly/ArTDyK John Hussman is a value investor and a serious student of the economy, we may not always agree with him but we should not dismiss his research.
Converting Cap Rates to Earnings Multiples
Filed under: Multifamily Investments, Value Investor's Guide to Apartment Buildings
Converting Cap Rates to Earnings Multiples
After a recent speaking engagement I was asked about how and why I use the earnings multiple concept when evaluating apartment investments. It was a great question and so I’m sharing my answer here in this blog post.
As a value investor two of the fundamental questions I always ask is what am I buying and how much do I have to pay for it. With an apartment investment (or really any investment) I am buying current income and the potential for appreciation so the second question comes down to “How many years of earnings do I have to pay for these returns?” The question can be answered by converting the cap rate to an earnings multiple. The Cap Rate is the return in current income on an apartment investment you could expect if you paid all cash. To convert a Cap Rate into a Earnings Multiple use the formula: Read more
Is the credit crisis the disease or the symptom?
I am running a friend’s campaign for city council so I’ve been talking to a lot of people the last few months. Most of the conversations have been about our home town of Bellevue WA and the local issues the city is facing but I’ve also had a number of conversations about the economy, real estate and the credit markets. The majority of the people, many of whom are developers, property/asset managers or owners, are searching for the turn in the cycle and are looking forward to the opportunities that will arise when things return to normal.
I too am looking forward to the upswing in the real estate cycle but I’m not sure that back to ‘normal’ is where we headed. I believe for the last two decades we have been and are living in the ultimate payoff of the Marshall Plan and its siblings. We have successfully avoided a third world war by creating market based economies where enemies might have arisen. This is an entirely positive outcome and surprising to me, a child of the cold war era. Read more
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