Misc Commercial /MF Market Data - Price Moving sidewise/downward?

Question

Hi Everyone ,

Just wanted to share some data that i found interesting .. These reports are available from RCA Capital Analytics website .

Context (Looking to buy/syndicate MF properties with retail mgmt in place and at the same time dont want to take on a risk for 5% or 6% CAP rate ...so pulling data to identify pockets.. which may or may not happen) :

1) Pulled Census data base where we could segment Cities by Population/Growth Rate/Unemployment Rate from 2013-2017. Now adding Poverty/Education etc on top . This is to identify cities potentially we can target for MF (secondary market) based on data. @Omar Khan

2) Overlay Top down Market data on top to figure out pricing/valuation (we follow major publications aka RCA Insights )

Whats on the chart:

1) Cap rate for MF (Class A/B aka Lifestyle) is lowest ...indication of competition

2) Pricing trend by year and then within major cities .. indication of possible downturn or isolation of submarket

3) (dont have it here) MF price index doubled in past 10 Yrs.... indication is that market pulled all operators including both good and bad

@Ivan barrett

Hypothesis:

1) There will be opportunities within MF to get a higher cap rate where Operator will need to exit due to operational/Debt performance... most probable case to compete with other existing good operators /indicators

2) Properties that will pass a stress test valuation with scenario where a downturn will happen aka vacancy will do up and rent growth isnt possible for a duration of 2-4 yrs.

It takes a bit opposite position to Recent post from

https://www.biggerpockets.com/forums/432/topics/687483-unprecedented-structural-shift-the-thriving-multifamily-market

And supports

https://www.biggerpockets.com/forums/432/topics/683154-bullish-on-multifamily

Omar Khan · Answer

Hope is a powerful drug. So is overnight riches and "power of positive thinking" only type mentality people.

Serge S. · Answer

@Shahriar Khan I like the thought process. There are multiple markets that a lot of operators like to talk about. Atl, Charlotte, FL large MSA markets. I like them too but knowing what I know that it takes to source a deal appropriately, I'm content sticking in my backyard rather than investing in the time to conquer a new market. Would rather go in as an LP with a proven sponsor. Finding that sponsor/deal is a different challenge.

@Omar Khan love the podscasts you have been on and your approach to underwriting, I'm a big fan. I see the boot camp 1st time syndicators in my market PHX on overdrive right now. It would be of service for them to listen to your approach. Unfortunately its tough to compete with these guys underwriting a 6% economic vacancy and 5% cap exit with perpetual 3% rent growth. I guess thats what they teach at band camp.

Omar Khan · Answer

That sounds very interesting but is a bit above my pay grade.

In other words, as the industry is fragmented and there area lot of cost frictions. It doesn't matter to simply identify an opportunity. The real trick is availing the opportunity. E.g. you might find a great asset in FL. Are you willing to go there regularly for days on end (4-5 times), conduct your due diligence and still have your cost structure in place?

The opportunity might be great but not a good fit given one's location/cost associated to close the opportunity.

You live in a solid market (love Houston!). IMO, start somewhere close to home and then go from there.

Misc Commercial /MF Market Data - Price Moving sidewise/downward?

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