Whats next in Multi Family and how do you get in front of it?

4 Replies

Hoping people smarter than me can shed some light on these questions....

So, there's a lot of competition in the Multi Family Space and people are buying properties where the numbers DO NOT MAKE SENSE because either .....

A. They are fund managers from Wall Street and get paid points on the front end and asset mgmt fees. 

B. They are new investors and do not know how to properly underwrite or simply do not care because they are looking to get a acquisition fee and hoping it woks out...

So the idea is ... when the recession hits, it will cause rents to shift and the people who over payed for their property will lose the property because they will either have to cover the difference in their debt service each month or may need to come to the table with more money for DP for the new DSCR. Which they most likely won't be able to do. So they will let them go back to the banks? Where does Wall Street Money go after that?

So Im assuming you want to start building relationships with bank Asset Managers now and raising money now .......but..... what would you do if you've haven't done a multi family deal yet? 

 Why would you get the deal (when recession hits) over all the other syndicators who have been in the business longer, who have more money and is  just waiting on the sidelines? How do you get any kind of track record started right now if every deal seems to be over priced? 

Is there a play for new people who want to get into Multi Family who do not  want to buy a crap deal right now?

You must CREATE good deals, they will not fall into your lap.  And by that I mean you cant browse Zillow every night looking for multi family in your market.  There are hundreds of ways to create deals, pick one and go with it.  You need to see what others are not seeing, deal to deal.  There is no such thing as a market wide "next best thing".  Multi family now is just like it was in seller markets in the past.  It may not be a time to buy in certain markets.  There are other markets out there.  I don't have fund managers in my market, thankfully, at least not that I know of, I am sure there are new investors, but they can only buy up so many bad deals.  The good deals are out there.  You might not know where to find them, or you might not even know how to spot one.  Be smarter than the rest of the market.  Add value, decrease costs, profit.

@Leslie Ray

There are several misconceptions here about market dynamics that are common among first time investors and those new to the CRE space.

1) Even though we are at the peak of the current cycle and prices have begun to level off, the correction that will take place will be nothing near a recession. Lending practices were drastically tightened after 08 which has subsequently lead to better underwriting and better debt securities. The market expansion that we have experienced over the last decade has been built off of solid economic growth rather than lose lending by the banks.

2) The current prices within the MF asset classes are being set by the market. The market is set by the price someone is willing to pay for a given asset based off of their investment goals. Overall, comps set the market by establishing a benchmark for other similar assets. Everyones investment goals are different which inherently creates discrepancies in what is percieved as a deal. An 8% IRR may not be acceptable to some but might be for others if their overall goals are different.

3) The CRE game is drastically different than residential. There are no borders to CRE, capital isn't restricted to local markets. A 5% cap rate looks amazing to money coming from a 2% cap market. This dynamic feeds into #2 hence driving the market.

This is a grossly oversimplified and very limited overview of just some of the more influential dynamics. There are a lot more variables involved but the general idea is there. The market is only ripe for certain investors at certain times depending on the scale of investment being made. Smaller investors ($0-$1M) are governed by different dynamics than the $1M-$20M players just like they are governed differently than the $20M+ players.

In this game you won't find deals on the internet. If a listing has made it onto the internet it has already passed through the hands of the pool of investors who have networked with the broker that listed it, and they have passed on it. The best brokers in this game rarely ever have to list a property. Find a good broker and give him a reason to call you first.