Rent Caps Gaining Headway and RE Syndication effects?

Question

Hello All,

Whats your thoughts with the recent developments over the last year of more states adopting rent caps and how these have or will effect RE syndication deals?  This obviously would seem to effect Multi-family syndication the most, but not sure if this changes LP view on this asset class.  It seems there have been some caps in place in NJ, DC, parts of Md and now Oregon and CA looking to enact as well and possibly WA to follow.  Do you think this will effect future syndication options in these states?  How are you LP's out there approaching this development?

Thanks in advance

Duke

Ben Leybovich · Answer

It has already had an effect. If you are a CA investor, Phoenix looks better and better each day.

Brian Burke · Answer

@Duke Giordano my sense is that some groups will avoid those states and instead focus more on states that do not have rent caps and are less likely to consider them.  I stopped looking at anything in CA a couple years ago just because the constant drumbeat of rent control and even split-roll property taxes.  I took Oregon off my list when they enacted their caps.  I'll stick to free-markets, and if others do the same it'll increase the already competitive landscape of searching for opportunities in more desirable markets.  This could ultimately suppress investment returns in those other areas for newer investments, but inflate returns for assets already owned.  Then, the pendulum will probably swing back somewhat, as investment returns in capped markets might not be much less attractive than those in non-capped markets simply due to capital flows.  It'll be interesting to see how this plays out.

Tj Hines · Answer

@Duke Giordano

Whats your thoughts with the recent developments over the last year of more states adopting rent caps and how these have or will effect RE syndication deals? (I personally think syndicators where these areas are their main focus will have to adjust and broaden their horizons, bandwidth and reach into other markets that are more favorable. We love everything that is happening right now in the Southeast. Still a ton of great opportunities out there. Just have to be persistent in your search.)

Do you think this will effect future syndication options in these states? (Yes. See above)

How are you LP's out there approaching this development? (Stick to operators that aren't operating in these markets where the rent caps are prevalent.)