All Forum Posts by: Account Closed

@Genise Edwards

 I don't believe you need a paid subscription for any of the reports.  Just go to the websites and find the markets you are interested in.

In addition to the three I mentioned in the earlier post, also check out Berkadia.com.  They also have some great reports.

@Bob B.

 the apartment construction market typically lags the acquisition market.  as the market slowly began to recover in 2010/2011, it was ripe for buying existing apartments, but in most cases rents were not high enough to justify new construction.  as rent growth accelerated in 2012 and 2013 and now a lot into 2014 and 2015 while it is harder and harder to find existing apartment buildings to buy, the last couple of years have been great for apartment developers.  Eventually, they will overbuild and some will be left holding the bag and the entire market will adjust, but that hasn't happened...yet.

@Account Closed

 Indy multifamily over 150 units will typically not return $200/unit.  The market is a slower growing one and often sees a lot of competition from new construction.  I've looked at almost every decently located 150 unit + deal that's come out of Indy since 2011 and haven't seen any that cashflow $200/unit.

Columbus, Louisville, Lexington, Nashville, etc are all better bets.

@John O.

The main source, and unfortunately the hardest to duplicate, is simply to be in the trenches day to day.  I've been talking to brokers, underwriting deals, touring properties and making offers on large multifamily deals (150+ units deals) on a daily basis since 2011.  That's how I am able to see cap rate movement, sales pricing rising, seller expectations getting higher and higher, etc.  

I fully understand that it's near impossible to see the things some people that are engaged daily can from the outside.  But there are market reports (CBRE, Axiometrics, Marcus & Millichap, etc) that help.  What I like to do is get the last 5 years of reports and then read them because that way you can see the direction the market is moving.  It's tough to look at a current report and understand where things are if you don't know where they came from.

Personally, I also think good commercial brokers are worth their weight in gold.  They are speaking with sellers everyday, listing properties, putting together BOVs and the good ones are fantastic sources of info.  The rub is obviously it's hard for someone who is not a player in the market to get the time of day from them.  

@Steve Olafson

thanks for the kind words.

if this pricing keeps going up though, pretty soon the only thing left for me to do will be to host a multifamily underwriting webinar, sell an ebook and become a guru! Haha.

@Jane A.

Typically, Fannie Mae or Freddie Mac loans over $5 million.  They have recently started a "small loan program" for multifamily loans in the $1-3 million range which I believe has non recourse options as well.

@Bill T. While every market is a little bit different, I think most are at or near the peak.  There are a few laggards (Las Vegas, Dayton, Detroit), but even those are getting closer.  My warning is just for people to be careful and understand what happens if you buy at or near the top of an apartment market cycle and then need to refinance or sell in a few years.  We have the added risk currently of potentially higher interest rates and cap rates down the road.  

We are still buying, however, mostly using 10-12 year Fannie/Freddie fixed rate, non-recourse debt.  But it's tough out there and hard to make sense of the pricing.

I'm just posting this as a warning for newbies.  Obviously, no one can predict the future and no one knows what's going to happen next year, the year after, etc.  But most apartment markets are at or near the peak in pricing for this cycle.  The apartment market cycle is not something that is discussed much on this forum, and I've been seeing a lot of posts about buying apartment buildings with little money and then having loans with a balloon payment in 1, 2 or 3 years down the road.  

It's really great that people are taking action and buying, but please please please be running sensitivity analyses on your exit strategy.  Don't assume rents will be higher in 3 years, values will be higher in 3 years, cap rates lower, etc.  Ask yourself, what is my exit strategy to deal with my balloon payment if interest rates are 2% higher and cap rates are as well?  Please understand what that does to the value of your building and plan accordingly.

Not trying to be doom and gloom, and hopefully the market continues to boom and rates stay low, but I'm seeing so many new buyers enter the market with little to no experience, no discussion at all about the cycles and most have these balloon payments.  

What's your plan to address the 3 yr balloon?  

Brian Adams my question about loan terms had to do with exit strategy. If you are looking at short term exits to refinance or sell (say 3-5 years), what type of assumptions are you making with regards to interest rates and a possible increase in cap rates? I think the economy may be stronger then, but will rising rents be enough to offset high interest and cap rates?