Why are Large Investors Acquiring Smaller Properties

[Charles Carillo]

Today we’re going to be discussing why are large investors acquiring smaller properties. An approach that is becoming more and more popular in today’s market is large investors purchasing smaller properties. Charles’ company has utilized this same strategy several times over the past few years and in today’s episode, Charles discusses why this becoming more relevant along with the pros and the cons.

Talking Points:

➡ Our firm started purchasing smaller assets a few years ago in one main market, Tampa. In recent months though we are seeing other investors take this same approach. So why is this happening when every syndication/investment course/coach out there is preaching to anyone that will listen to only buy 100+ units?

➡ The main reason is price.

        o It is typical that complexes with 100+ units will sell at a premium when compared to smaller complexes. This is something that we are seeing in a number of markets throughout the Sunbelt; including Florida.

        o Yes, in a perfect world we would only purchase 100+ unit deals but in hot markets we have been looking at smaller deals, 50+ units; and not just 50+ unit complexes but putting together a portfolio of nearby properties in order purchase as many units

        o In one Tampa deal we purchased a 32-unit complex with 27 units comprised of triplex and quadplexes around it; making it a 59-unit deal

        o In another Tampa deal we purchased a 22-unit property with a 68-unit property a couple blocks away; making it a 90-unit deal

➡ Points to consider

        o The United States is seriously lacking multifamily and industrial inventory – not just large complexes but multifamily units in all size complexes

        o In larger deals (100+ units), you are normally going to see less rent growth compared to a smaller complex since larger complexes have been targeted by most investment groups while complexes under 100 units are typically passed over (until now) by larger groups – this is mainly due to the fact that larger investors want to place 5+ million dollars in each deal and will pay a premium to do so

➡ Cons

        o Usually, no amenities

        o Slightly harder to manage and lease units – not every property has a leasing office or onsite management

        o If you have tens of millions of dollars to place (for each deal); this is not the strategy for you

        o New investors in a market might being paying more for management until they have purchased multiple smaller complexes and get some scale

        o You have to purchase more deals to place capital

        o Time involved to do a deal is similar to a much larger asset

➡ Pros

        o You are still buying deals and placing capital

        o Great for smaller groups or groups where you already have a management footprint in the market – the more units you buy; the less expensive your management becomes

        o Smaller properties will typically operate on lower expense ratios than larger properties; mainly due to not having amenities

        o Not competing with larger investors

        o Smaller deals are a less perfect market; I believe it is easier to find value in smaller complexes say a 10-30 unit deal or even a 50-unit deal vs. a 200-unit deal being sold by a very sophisticated investment group

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