All Forum Posts by: Account Closed

Ben Leybovich where is all this vacant Class A? I'd love to know. Most Midwest cities are booming with new development right now. Not sure what market you are referring to, but Minneapolis, Indy, Columbus, etc are building thousands of new units per year. Costs well over $70k/unit (Minneapolis is double that) and rents are over $2.00/SF.

@Jay Hinrichs that's how it works for the most part. I'm fortunate that the firm I run acquisitions for has a great reputation. I just spent the past week in Palm Springs at the National Multi Housing Conference hanging out with all the brokers from our target markets. We see just about every deal in the Midwest and south over 150 units that is for sale due to these broker relationships. We just lost an off market Fannie foreclosure to another buyer at the last minute. We were pretty bummed, until we found out his last name was Romney.

Ben Leybovich I think you are right. Sellers want stabilized value upfront, even when there's a substantial value add needed. You pay for the value upfront in today's market.

Sorry, can't edit from my phone. What I meant to say is this is a challenge in the current market for small syndicators. Not always. Just another thing making it hard to buy right now.

You also have to understand that the bigger firms get better opportunities from brokers. When it comes down to discussing offers, sellers want to know a buyer's history and experience and look to the brokers to guide them. There are still good deals to be had, but most small syndicators don't have a realistic shot at them. Sellers want price and certainty of close. Certainty of close is huge. As an example (that I see happen all the time because we are also on the buy side), we sold a 276 unit deal in Dallas last year that received over 20 offers. We had a small syndicator offer to pay close to $500,000 more than the next highest bidder. But this syndicator only owned around 300 units and was fairly new. We opted to go with the second buyer, despite their lower price. Why? Because they own over 49,000 units, buy 20 deals per year and close in cash and guarantee not to retrade.

Ben Leybovich the people that are buying low 5 caps are typically using floating rate debt which still gives them a 200-300 bps spread over their cost of debt

You also have to keep in mind the size of these buyers and the fact that most are not using their own money. Institutional funds are able to raise money hand over fist right now for US multifamily. Funds are designed to raise and then spend money. If they raise $500M, they need to o spend it and will continue to buy no matter where things are in the cycle. Yields have been compressed so far on the coasts that we're seeing these funds target the Midwest in their search for yield, which is a new phenomenon. Also, when you are a small syndicator, one bad deals can end you. When you are $500M equity fund, it's a blip on the radar.

Brian Burke how many days will you be at NMHC? I'll be there as well and would like come say hello if you are around.

Brian Burke is right on the money with regards to cap rates. I look at several deals every week and really good brokers will say what the cap rate is based on (typically seller's trailing 12 or projected year 1), but even that needs to be taken with a grain of salt. Cap rates are nothing but a guide. People always brag about what cap rate they bought at, but Brian and Steve Olafson are correct -- many good deals are actually low to negative cap rates! The opportunity lies in improving and stabilizing the property.

Are you planning to live in the 4 plex? What is your plan for your house?