The multi-family market seems to be a hot topic in commercial real estate these days. Why do you think this is?
Because of the difficulty associated with the purchase of single family homes, many cannot buy, and this creates opportunity for multi-family investors, and those generally interested in acquiring income producing real-estate..
Tell us about your experience in the multi-family market.
Many years ago, in another lifetime, I was in the business of syndicating limited partnerships where we acquired t apartment buildings. At that time I had a property management company that physically managed the apartments, and I in the capacity of the general partner fiscally managed the properties’ finances. I did this for ten years.
What would you say is the greatest opportunity for current multi-family managers or owners in today’s market?
For those who own multi-family properties, opportunity exist because of the single family housing market decline. It is an opportunity in two different ways:
1) It is an opportunity to raise the level of rents which will allow for improved maintenance, better curb appeal, therefore creating a higher value for the asset
2) It is an opportunity to sell. The proceeds resulting from the sale can be used as leverage to purchase real estate in maybe a different, sector or to purchase multi-family real estate from owners who are still experiencing a high level of stress.
What would you say to those looking to invest or purchase in the multi-family sector?
If you want to acquire , ,because of the single family housing market situation, it is a good time. With low interest rates, where they are today, and with prices being depressed, it is the first time in a long time that this sector has the potential to be a very lucrative opportunity.
Conversely and on the other hand if you are a seller, it can be a very good time to sell because a legitimate case can be made to a new purchaser that lease rates and occupancy will in all probability rise. The sale proceeds can create a new purchasing opportunity.
What trends are you seeing in multi-family housing?
Rents are starting to rise. Multi-family is the only sector overall, across the board in commercial real estate with very few exceptions, that seems to be experiencing higher occupancy and higher rents, and that is probably going to be the case for an extended period of time. You can predict that there probably are not going to be many new properties on the market - who can get financing? Even if they wanted to, how will people build them? With a static supply and an increased demand that is an opportunity for those investors who are targeted at looking at this sector.
Every dog has its’ day, and this day may be coming for the multi-family market. It has been in the doldrums for a long long time.
What is the best advice you could give to someone who owns multi-family properties? Keep or sell?
That is a difficult question, because that decision should not be made solely on what they hold and what they don’t hold. It should be made on their bigger picture: What other opportunities are out there for them? What is there financial situation? What is there age? What’s their health like? What is their life like? All those things have a bearing on what and where you purchase and where and what you sell.
I did talk to an apartment owner recently about his multi-family portfolio. I presented the case to him in regard to selling, and what opportunities that might bring, and he said “you made a great case, but I am ready to retire and my building is almost paid off. I don’t want to sell because I just want to collect the rents and live.”
So, he put that in context of his life, and I understand that. That is exactly what I would do. It is the same with any purchase or sell you make with real estate. When you buy house, you don’t just buy it because you love the house. You have to take all of these things into consideration: How your job outlook is? How your relationship status is? How your financial status is? The list goes on, but it is always part of a much bigger picture.
Suggestions or Take-Aways
I would say to maximize your value, and this is so fundamental, but it is amazing how it’s difficult to do for those owners who do not have professional management companies, but if you want to sell or just maximize your value:
- keep good records of your tenants, of when their lease is up, when it starts, what they are paying per foot, watching your leases when they expire
- keep up with your buildings – keep them clean, keep the parking lots clean, pay for landscaping, keep the curb appeal
- Respond to your tenants when they have problems – and if someone has an air conditioner go out – fix it! Otherwise, you are going to have a tenant move out, and then you are going to have to pay to clean it, paint it, carpet it, advertise it, and pay a commission.
These little nuts and bolts seem so silly, but they are what make ALL the difference when you are creating added value.