Read this week that well known stock market perma-bears have gone bullish and that struck a nerve in my contrarian’s contrarian heart. This morning I read a post on the Joseph Bernard Investment Real Estate blog that really got my attention. Here’s what stopped me in my tracks:
In three decades working in and studying multifamily, Johnsey, president of Dallas-based research firm Axiometrics, has developed a bias toward an outlier’s view of what’s happening and what’s coming next. This time, though, it’s different. Strangely, he’s finding no counterpoint position to argue.
“Everything is just ripe for a robust apartment market,” Johnsey says. “I’m always looking for problems. But these numbers are just some of the strongest I’ve seen.”
Johnsey has company aplenty. Market researchers, Wall Street analysts, REIT executives, big multifamily players, and small alike can scarcely quell optimism over practically a sure bet for a bountiful 2012. [Emphasis mine]
Regular readers and students of the financial collapse will instantly recognize the first highlight as echoing the title of probably the best book ever written on the subject, “This Time Is Different: Eight Centuries of Financial Folly”. Authors Rogoff and Reinhart have researched and written (exhaustively) about how many times that sentiment has proven exactly wrong. If you haven’t read it, check it out on Amazon by clicking on the book image in the ‘Learning From History’ section on the right of this page.
Granted the rest of the article goes on to lay out the great fundamentals the national apartment market is currently enjoying and further that short of institutional grade properties in core markets multifamily is a very local business (and properties are more reasonably priced). But still…
What are you seeing in your market?
“Not all residents want the same thing,” Conway says. “Listening to what our consumers want and wrapping them in a brand is going to help us grow.” AvalonBay hopes to attract younger consumers to its metropolitan “AVA” buildings… designed to be more youthful than other high-end AvalonBay buildings because they’re targeted to Gen Y residents, many of whom live with roommates in smaller, urban-style apartments.
Are your properties targeting specific demographics? Could you attract more tenants by marketing to a specific lifestyle? See the whole MFE article here: AvalonBay Launches Brands for Gen Yers, Suburbanites
A recent report from New York–based commercial real estate research firm Real Capital Analytics (RCA) reveals that apartment sales figures closed out 2011 on a positive note. The firm’s “2011 Year in Review” report shows that the fourth quarter of 2011 netted $16.6 billion in sales, the highest quarterly volume racked up since 2007. This marks a 16 percent increase from the previous quarter and a 24 percent bump from fourth-quarter apartment sales in 2010. Among the more optimistic data revealed in the report was the rebound of garden-sector sales.
Garden properties ended up 47 percent ahead of the 2010 figures, and it appears that the sales momentum experienced in the fourth quarter will carry over into the first quarter this year. “Given the stable cap rate environment for garden properties, compared to sinking caps in mid-/high-rise, that trend is likely to continue in 2012,” projects Thypin.
See the whole AHF article here: Apartment Sales Close Out 2011 on the Rise
“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
Composting food waste is an eco-conscious activity typically associated with single-family home neighborhoods rather than apartment complexes. But composting will be easy for residents of the green-centric apartment complex being built in Minneapolis, which will open later this year.See more at http://bit.ly/wJjcGI
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: Continue reading Converting Cap Rates to Earnings Multiples
Recently I’ve been working with several new clients who are conservative investors looking for better returns than CDs and Treasuries but aren’t interested in taking on the volatile market risk of stocks, bonds and derivatives. I was explaining why apartment investments make sense and there are quite a few reasons but the biggest one is how the math of an apartment building investment works. In this post I’d like to share that with you in case you’re also looking for conservative income producing investments with inflation protection and upside potential.
Here’s the numbers on a typical apartment investment:
In this example is a 100 unit building with 850 per month per unit average rents which is purchased with a down payment of 25% and a 30 year loan for the balance at 5.5% interest. Vacancy is 5% of Gross Potential Rent, expenses total 50% of Gross Operating Income and a cap rate of 7.5% is used. Today in some markets cap rates are higher (buildings less expensive) and in a few others cap rates are lower (buildings more expensive).
Apartment Buildings are valued on the income they produce. (This post is about properties larger than 4 units, smaller properties are valued more similarly to single family homes.) There are several ways to calculate the value based on the income but the most common is the capitalization rate, or cap rate for short. The cap rate is the percent of the property value that the Net Operating Income (NOI) represents: Continue reading Why We Like Apartments- Owning them that is.
For value investors, Demand, Supply and the Cost of Acquisition are the three factors affecting the apartment building investment decision and all are saying the time to buy is now. There is a tidal wave of new renters coming into the market and there has been little apartment construction to meet this growing demand. Outside of the gateway cities the prices of existing apartment buildings remain below the cost of building new. Fixed rate financing is available for apartment buildings at rates lower than we will see again for years if not decades.
“The multifamily sector is probably the only commercial real estate sector that has very positive fundamentals behind it,” said Jeffrey Baker, managing director at Savills LLC, a real estate investment bank that raises capital for multifamily owners and developers. “You’ve got a demographic that is producing more households that want to rent an apartment. You’ve got virtually no new supply that’s been added over the last several years.”1 Continue reading The Apartment Building Investment Triple Opportunity Is Right Now
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. Continue reading Is the credit crisis the disease or the symptom?