Just 6 months ago I shared how the apartment investing market is turning the corner and has a tremendous run ahead of it. Boy did we hit the nail on the head. In case you missed Apartment Investors: An Optimistic Bunch, here are the key highlights…
A YEAR AGO, THE TERM “CAUTIOUS OPTIMISM” was a popular forecast for 2011, a middle ground between the hangover of a nasty recession and the hope inspired by improving fundamentals.
However, as values and access to capital continue to improve, however, multifamily professionals are starting to drop the caveat from that forecast. Value-add deals are returning to vogue and acquisition activity is heating up well in advance of the typical fourth-quarter busy season.
“We’re obviously bullish that we’re at the beginning of a development cycle, so we’re putting a lot of time, energy, and resources there,” says Jay Hiemenz, CFO of Phoenix-based Alliance Residential. “And the cap rate compression, coupled with better fundamentals, has made deep renovations feasible again.”
SWEET DEAL: In April, Alliance paid just $3 million for The Pueblos, a high-end condo community in Las Vegas that was only about a third finished when its $8.7 million construction loan was foreclosed on.
Alliance isn’t alone in its optimism.
“You haven’t seen any new supply added for the last two years and that really creates a lot of bullishness for early-cycle development,” says Derek Ramsey, CFO of Charleston, S.C.–based Greystar. “We feel like there’s pent-up demand, that even with lackluster job growth, the earlycycle deals coming out of the ground should perform extremely well.”
Indeed, what the data, along with interviews with active industry players like Ramsey, indicate is that multifamily firms are chomping at the bit, ready to feed these growing appetites more aggressively than at any point since the Great Recession.
And as this optimistic bunch forges ahead, they are all too cognizant of the following five market factors influencing their every decision.
#1. Price is what you pay; value is what you get.
#2. Turning down leverage is probably smart.
#3. Value-add and trending rents are back.
#4. Distress has not gone away.
#5. The bottom line can always grow further.
HOW LOW CAN CAP RATES GO?
Last year many borrowers thought they were facing a once-ina-lifetime opportunity when the yield on the benchmark 10-year Treasury hovered around 2.4 percent in the autumn. Yet, the benchmark hit 2.1 percent August 10, 2011, keeping mortgage rates at historic lows.
Bring together a wave of hungry capital-targeting multifamily plus surging fundamentals, and you’ve got the formula for cap rate compression. So multifamily finance pros aren’t shocked that values have improved—it’s the rapid pace of that improvement that’s surprising. Indeed, few saw this coming.
In last year’s CFO Strategies Survey, 78 percent of respondents believed cap rates would stay flat or rise this year—yet they have continued to compress. In this year’s survey, 83 percent expect cap rates to stay flat or start rising in 2012. Still, other CFOs have been bolstered by the Federal Reserve’s pledge in August that it would keep interest rates low for the next two years. And they also see the ever-improving debt and equity markets as proof positive that cap rates will continue to remain compressed, or even fall a little further, in 2012. Apartment Investors, Read the Full Story Here.
Fast forward to today. Foreclosure Apartment expert Michal Ballard, and his clients that he took under his wing last fall are closing deals. And not just any apartment deal. To quote Michal…
“It’s unbelievable. Nothing like I expected a year ago when we first brought this information to your clients Alexis. The deals I am seeing now are crazy. Can you imagine buying buildings for 2-3 times rent and getting 16-18% cash flow returns within the first year? It’s like we are holding a clown machine and they are spitting out clowns to us! And our money people cannot get enough… with the 30% overall returns they are seeing they are clammering for more and more deals. We are busier than a hornets nest!”
They have been doing deals, and A LOT of them… using 100% outside private money (through syndications) and building in upfront paydays, equity sharing, monthly income and more paydays after they are stabilized and refinanced, and of course the big payday once it is sold.
Currently, Michal has 9 deals in process, plus more in the pipeline. He expects to close another 6-8 projects by year end.
To say he is very busy, is an understatement. We are fortunate to have Michal back ONE LAST TIME in our Professional Investors Webinar “Earn Huge Profits Investing in Apartment Foreclosures” this Wednesday Only at 6pm PDT. And now you may join at no charge.
Since this the last time we will have Michal for quite some time, we wanted to make sure all our clients had access to this important information for FREE. Please register here now and login early. Our Free Spots are filling up fast and I am expecting a sell out. Talk to you Wednesday!
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