Supply Shortage Continues in Multifamily. Apartment vacacny lowest in 11 years.
Filed under: Commercial Real Estate, Multifamily Design & Development, Multifamily Investments
From WSJ Developments-
Little new apartment construction and surging demand has created a shortfall of 2.5 million units, the largest the nation has seen in more than a half-century, according to research from Nareit, a trade group for real-estate investment trusts.
As we’ve reported, apartment landlords are seeing vacancy rates decline as more Americans rent by choice or necessity. In the fourth quarter, apartment vacancy fell to the lowest rate since late 2001, with the national rate dropping to 5.2% from 6.6% a year earlier, according to Reis Inc. The vacancy rate had risen as high as 8% in 2009.
Pent-up demand could pull that rate even lower. According to Nareit, the normal rate of household formation is about 1.2% annually. But, with the sour economy in the last four years, the rate plunged to about 0.5%, as people delayed moving out and opted to live with roommates and parents longer. This has created an unmet demand of about 2 million households, “about three times what it has been in previous business cycles,”… See the whole article here
The #Multifamily Asset Twilight Zone: In default but payments still being made. Opportunity or? Via @rshall03
Filed under: Commercial Real Estate, Multifamily Investments
A common theme adopted by the industry is that lenders continue to delay action on distressed assets for as long as possible.
The fact is that this scenario is borrower-specific. If a borrower is acting in good faith, the lender may allow the asset to continue operating, resulting in a commercial property “Twilight Zone.”
The Twilight Zone is made up of properties on which loans have defaulted or in which default is likely imminent, but the borrower is still willing to provide all available cash flow to the lender, even if it is not enough to cover the payments. The lender agrees to accept net rents and, in turn, keeps the building operational, albeit in a limbo period.
When the lender does finally pull the plug value opportunities can Read more
Multifamily rental construction definitely the brightest sector in housing market.
Filed under: Commercial Real Estate, Multifamily Design & Development, Multifamily Investments, The Economy and Current Affairs
See the Housing Wire piece here:
Seattle Apartment Building Investment Cycle peaking or just taking a breather?
Filed under: Commercial Real Estate, Multifamily Investments, The Economy and Current Affairs
In his Q4 report on the Seattle multifamily market ARA’s Jim Claeys says:
Vacancies and Concessions UP
Absorption and Rents DOWN
New Construction Pipeline UP 140% from year ago
Also Home and Condo Sales UP 41, 70% respectively
Sounds kind of like the cycle is moving to the next phase doesn’t it? See the whole article here: This may be a good time for developers to reassess their projections
FHA Streamlines Approvals on Multifamily loans less than $25M/250 units.
Filed under: Commercial Real Estate, Multifamily Investments
“It’s a huge help,” says Jonathan Camps, managing director of production for Washington, D.C.-based Love Funding.
In the past, any loan of at least $15 million, or any deal of more than 150 units, had to go through the FHA’s National Loan Committee. That threshold has been dialed up to $25 million, or 250 units.
What’s more, any existing FHA-insured loan looking to refinance through the Sec. 223(f) program no longer needs to go through either the regional or the national loan committee.
Good news indeed! See the whole article here: FHA Streamlines Multifamily Loan Approvals
Top 10 Tips for Acquiring Distressed Multifamily Properties
Filed under: Commercial Real Estate, Multifamily Investments
Nice article in MHN Online, good tips and reminders. There are still plenty of properties worth less than the debt, and there are more foreclosures to come. Most of the distressed multifamily properties are B, C and D class properties. These properties can provide great returns with cap rates from 8 percent to 12 percent on existing income, and in most cases have plenty of vacancy for even more upside.
My top two that apply to all properties distressed or otherwise:
Good management: Distressed B, C and D properties require experienced and diligent asset and property management. Your management team should be top notch. Your turnaround plan should be realistic and properly implemented.
Talented leasing staff: Your leasing team should be properly motivated and for lease marketing extremely thorough. You want a well-thought-out, multi-disciplined lease up plan to stabilize properties in this cycle.
See the article here: http://bit.ly/xW6fZp
DC Multifamily sales surge to $4.7B in 2011, up 1.1B from 2010.
Filed under: Multifamily Design & Development, Multifamily Investments, The Economy and Current Affairs
By Daniel J. Sernovitz Staff Reporter – Washington Business Journal
I believe this quote from the article reflects an important trend in multifamily, indeed all residential development, re-development and infill: “People are paying a premium to be within a one-block radius of a Metro station, and properties within walking distance of Metro stations continue to be a strong lure for investors,”…
One thing the article doesn’t cover is where prices are vis-a-vis replacement cost… makes me wonder where they are in their apartment market cycle-
See the whole article here: DC Multifamily Sales Surge in 2011
Only 38k Multifamily units added in 2011; demand = 300k+. Grubb & Ellis 2012 Forecast
Filed under: Multifamily Investments, The Economy and Current Affairs
New development is picking up but is restrained by lack of lender appetite.
Senior housing to see vacancy decline below 10% also.
Via Grubb & Ellis’ 2012 Real Estate Forecast available here: http://bit.ly/xfBnmd
Thanks to Jason Brumm of G&E San Antonio
Extra 100-150bp of risk premium (good!) for Multifamily says Freddie’s Brickman.
Filed under: Multifamily Investments, The Economy and Current Affairs
AFT: When you look at some of the cap rates on recent transactions, do you feel like the multifamily industry is getting a little overheated in some markets?
Brickman: I do not. I think it is perfectly rational where cap rates are now. The cap rates are driven by financing costs, and what you’re really saying is, can cap rates go up? Of course they can, and if [interest] rates go up significantly, cap rates would likely go up, but it’s not one for one. What you have to look at is [that] the spread of cap rates to Treasuries is actually quite wide.
AFT: It’s probably more than 400 bps now, on average.
Brickman: Exactly, and historically it has not been anywhere near that wide—it’s been more like 250, 300. And so you’ve got a very healthy risk premium to real estate right now, and you’ve got strong growth forecasts. There are very positive influences lining up behind demand and a relatively anemic level of supply. So, I think you can legitimately sign up for pretty healthy rent growth. And that [in] itself justifies a low cap rate even independent of the interest rate.
See the whole interview at: http://bit.ly/xp9VM7
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
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