Thoughts on investment in Victoria TX?

Question

I'm researching online data for Victoria TX.  Wanted to get some opinions on the economic, demographic, and overall climate for multifamily properties there.  Anyone invested in Victoria TX?  What do you like or don't like?

Omar Khan · Answer

@Michael Dang Honestly, historical cap rates play minimal, if any, role in my underwriting. We do look at them as part of our wider market research but since we are not investing in A or D type sub-markets, they do not play as important a role.

Basing purchasing decisions off a current cap rate makes little or no sense to me (would appreciate being corrected). Assuming, one has picked a market/sub-market (based off market research criteria), the critical factor, for us, becomes exit cap rate.

It doesn't mean, I don't look at purchasing cap rate at all or pay no attention to it.  But I just don't get this obsession with basing values off cap rates. They are good to approx. a value but serve little purpose when doing deeper valuation.

We have our investment criteria and if we can underwrite at/near the investment criteria (given our market research - mainly centered around growth and employment outlooks), then we go ahead with a deeper analysis/LOI.

We had to develop a filtering mechanism, otherwise I would keep chasing my tail underwriting every single deal that came to market.

Omar Khan · Answer

@Michael Dang Was underwriting 2 properties in Victoria.

For us, it depends on the size of the asset. I would shy away from 150+ units (unless you got the deal of a century), but the sub-70 units is not a bad spot for Victoria. If you're near the University, hospital or the Formosa offices, you'll do fine.

What we don't like? Smaller market and less capital appreciation potential.

What we like? Above comment + less competition, consistent/high income, stable employment.

Justin Joe · Answer

@Omar Khan Could you please share with me your investment criteria and the filtering mechanism you use?

I'm not sure if that's asking a lot, so I apologize in advance if it is. I'm just beginning the transition to larger multifamily, so any advice is helpful at the moment, and you seem very knowledgeable and proven in the space. Also I specialize in finding off market deals, so if I find anything meeting your criteria, you'd be the first set of eyes to look at it.

Thank you sir

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Michael Dang · Answer

@Omar Khan - Thanks for the feedback.  It really does help.  I've been looking at properties in the 50-90 unit range there and have seen some close to the university and hospitals.

In your submarket research, what historical or current cap rate did you find?

Omar Khan · Answer

@Jared Carpenter Best to PM and talk.

Shoot me a message.

Jared Carpenter · Answer

@Omar Khan

haha of course, but that's a heavy spread to your required returns! Do you have LIHTC experience/familiarity?  More so, I am curious your opinion on how difficult it would be to syndicate equityfor this type of a deal.

Omar Khan · Answer

@Jared Carpenter Is your IRR based on best-case scenario broker math? :) (j/k)

Send it over and I'll have a look.

Thanks.

Omar Khan · Answer

@Jared Carpenter Per Door: $62-69K range

Return thresholds: 15-18% IRR and 1.8-2.0x equity multiple (LP returns).

Jared Carpenter · Answer

@Omar Khan

what was your per door pricing for Victoria on those properties, and what return threshold do you need to hit?

Omar Khan · Answer

@Michael Le Don't think the market is big enough, less capital appreciation potential (compared to other options), renovated rent premium being lower than other markets.

Thoughts on investment in Victoria TX?

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