September 22, 2016
By Amy Wolff Sorter
The focus of multifamily capital tends to be on massive transactions; the just-completed, Class A trophy asset in a CBD, or the huge portfolio traded between two REITs. But panelists at Connect Apartments 2016’s “$1-$15 Million Deals: Cashflow Kings” showed there is plenty of capital activity going on with the smaller, older properties as well.
First of all, outside of the so-called “gateway” markets, there isn’t much combat between lenders. “In our space, the competition is fierce in Los Angeles, San Francisco, Boston and New York, where you have the banks and other sources of capital competing,” said Mark Besharaty of Hunt Mortgage Group Holdings. “But once you get outside of those markets, there is less competition.”
Even in those competitive areas, service is the best competitive advantage. Luther Burbank Savings’ Jason Pendergist pointed out that faster execution and delivery leading to what he termed a “more pleasant experience for the customer” is a good long-term solution. Added Andrew Kwok with Capital One: “Competition has gone beyond interest rates, and is proceeding to the actual deal structure. Trying to iron out the best solution is what much of the competition has come down to.”
The panelists also discussed the typical buyer/seller profile for deals less than $20 million. Greysteel’s John Mullen discussed the opportunity offered by older, smaller properties; opportunities that institutional investors or REITs might not want to pursue. Henry Manoucheri with Universe Holdings agreed, noting that his best deals come from mom-and-pop concerns. “They’ve had the property forever and haven’t put anything into it,” he said. “That space requires a lot more work. But there is more opportunity and it’s more profitable because of the type of seller you’re buying from.”
And when it comes to the buyers, “many times, people just come out of nowhere and take these deals down,” noted David Harrington with Matthews Real Estate Investment Services. He added that the deal structures are less complex, as well.
Most of the panelists were positive about multifamily in 2016 and 2017. “Barring any kind of shock to the system,” said Kwok, “we don’t see interest rates skyrocketing. Multifamily is in a good place.” The speakers also agreed that a sluggish global economy would mean continued capital flowing from overseas sources.
But Greysteel’s Mullen did sound a note of caution, pointing out that things were also looking up before 2007-2008. “The market will continue to grow over the next year until it doesn’t,” he added. “But I’d say it’ll be about the same as this year.”
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