Multifamily – Page 3 – Rose City GPT

Apartment Experts Follow the Money

: HUD loans are perfect for buying apartments in Beaverton, Portland or Vancouver!

Good to see that CCIM is touting both the availability and benefits of HUD loans. I’ve been talking about these for almost two years and getting little more than: “Huh?” Not for everyone…because they do take longer. But assumable non-recourse, 40-year amortization and term loans are great for some investors. I wouldn’t recommend it…but you can get over 90% LTVs in select circumstances.

Try this on for size: Pay cash for a distressed asset for a dimes on the dollar. Remedy vacancy challenges and stabilize occupancy over 90% for six months. Place a 70% LTV HUD loan on the property and you’ll be able to pull out virtually all of your original equity. It will still cash flow. What’s the IRR calc when you’ve got $0 cash left in? Infinite. Call 503.577.1034 to discuss this further!

From: CCIM Magazine

Government-sponsored enterprises Fannie Mae and Freddie Mac have been a lifeline for multifamily investors, providing liquidity that is sadly missing outside of the apartment realm. “That has softened the amount of value decreases in the sector,” says Dan Fasulo, managing director at research firm Real Capital Analytics. “For prime multifamily, we’re not seeing the type of 40 percent to 60 percent declines in value that we are seeing in the office, retail, and hotel sectors.”

CCIMs say the U.S. Department of Housing and Urban Development’s loan programs may soon overshadow Fannie and Freddie as the darlings of multifamily borrowers. Those programs, insured by the Federal Housing Administration, include 223(f) loans, which can be used to refinance assets, and 221(d)(4) loans for new construction.

Loan-to-value ratios can be as high as 90 percent of construction costs and typically amortize over the 40-year term of the loan, says Jeff Siebold, CCIM, an appraiser and owner of Siebold Group in Caswell Beach, N.C. “This is not about subsidized housing; it is about market-rate apartments,” Siebold says. “Some of the nicest class A or B properties that you see very well might have a 221(d)(4) loan as part of their program.”

Government-backed loans won’t work for every project, in part because they are limited to stabilized properties, according to Brad Miner, CCIM, a CB Richard Ellis associate in Phoenix.

Brokers say cash transactions also are mushrooming. Wealthy individuals concerned about inflation are increasingly interested in multifamily as a conservative investment vehicle, says Robert Vallera, CCIM, principal of Commercial Realty Advisors in La Jolla, Calif. Vallera contends that many investors worry U.S. fiscal policy will soon fuel rapid inflation. “I have closed more all-cash apartment transactions with private investors in the past year than in my prior 25 years of apartment brokerage combined,” he says.

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Multifamily / April 27, 2010

Buyer Needs a Seller!

multifamily, portland, rick bean, apartment, rose city commercial real estate — I have a Multifamily Buyer, are you ready to sell?

I’ve to talked to property owners, brokers, title companies…but nobody seems to know of any properties for sale that fully meet the needs of one of my clients. He has no 1031 or 1033 Exchange deadlines to worry about…but he does have cash sufficient to purchase 60 to 80 quality units in the Portland area. Wilsonville doesn’t hit his sweet spot…nor does Gresham or much East of I-205. Vancouver is possible…West and Southwest PDX would be winners.

He’s willing to pay a fair price for quality.

He takes real pride in ownership: fixer-uppers are not his thing. This is a knowledgeable investor who puts little stock into overly optimistic proformas. The challenge for me is to deliver value to him he can’t find elsewhere by himself. Off-market deals, pocket listings are more likely to get consideration than something on Loop-Net or Craigslist.

I appreciate all offers

…including the six folks that have suggested that their client’s now dark single tenant NNN store would be a good opportunity. This investor is focused exclusively on multifamily opportunities.

I closed a small apartment complex earlier this month, and I’m working on two new multifamily listings…a retail space lease and offers on two houses. With your kind help finding an owner willing to part with a 60 to 80 unit complex, June will finish out a heck of a month. If you have any ideas good or bad…please call Rick M. Bean at Rose City Commercial Real Estate: 503.577.1034, or e-mail me at: rick@rosecitycre.com.

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Multifamily / June 22, 2009

Data Supports A Multifamily Uptrend

Associated Estates is a self administered, self managed Real Estate Investment Trust that owns 13,192 multifamily units in 52 communities in 9 states. Their CEO, Jefferey Friedman, was interviewed by Keat Foong, the Executive Editor of Multi Housing News.

New Renters Will Outstrip the Supply of Apartments

The number of new renters will exceed the supply of apartments by as much as two times, according to the president and CEO of Associated Estates Realty Corp. Jeffrey Friedman.

In an interview with MHN, Friedman argued that demographic patterns in this and next decade dictate that there will be strong demand for apartments that will outstrip supply.

Friedman explained that the homeownership rate is about 65 percent currently, and that the total number of households in the US is about 120 million. “If 35 percent of the population rents, we are talking about 40 million households that are renters,” he said.

According to the census bureau, there will be 15 million new households over the next 10 years, translating to about 1.5 million new households per year. If only 30 percent of these households rent, says Friedman, this will mean there will be 450,000 new rental households per year in the next 10 years.

However, apartment starts have been hovering at around only 200,000 units from the supply standpoint. “We know there is no overbuilding,” says Friedman. If this pattern holds, “In fact, there will be half as many new apartments built as new renters coming into the market,” he says.

The difficulty for the apartment sector in the mid-2000s was the number of renters going into homeownership, says Friedman. “There is a tremendous number of young people coming into the market. If there is a high number of new households and the propensity to rent is high, what keeps them from renting is homeownership.”

Friedman argues that the level of homebuying will not likely return to the levels seen in the past few years. “In 2004 to 2006 was the worst time for us when everyone can obtain a home loan, because our customers can go out and buy a home. We will not see thing getting to that level again.”

The “spoiler” now for the apartment industry, says Friedman, is unemployment. In 1980 to 1981, when unemployment reached 10.8 percent, occupancy was about 92.5 percent in the 49 largest rental markets, he says.

Friedman says with current unemployment levels, the industry is likely to be able to maintain an occupancy level of 92 to 95 percent, “but we won’t be able to raise rents as much,” he says.

Household formation, rather than job growth and wage increase, is the main driver of the apartment business.

For this reason, Friedman suggests, demand for apartments should not be as affected by the economic downturn than if job growth were the major engine of demand for apartments.

Contact Rick M. Bean today if you would more information about the uptick in multifamily investing: Rick@rosecitycre.com or 503.577.1034.

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Multifamily / May 7, 2009

Lending Professionals: Love Funding

Finance Professional, Holly Bray, Love Funding, Love, Commercial Real Estate Loan, Rick Bean — Finance Professional, Holly Bray

In the old days, bankers used to take commercial brokers out to lunch…we were customers. They’d tell us how much we were valued, and they would tout their customer service. Nowadays, we invite them to lunch and we’re pretty delighted if they return our calls.
Brokers differ on which used to be more difficult to find: deals worth doing, or finding a buyer and seller that could agree to terms. Financing was never easy, but it certainly was the least problematic of the three. Now it may be the most important of the three and the hardest to find.

Several months ago I spent several hours with a commercial mortgage broker reviewing current needs. One project needed a $2 million loan, one was twice that, and others were smaller. That broker hasn’t called back yet. Actually it’s been so long I wouldn’t take his call now. I worked with another company for weeks on a deal…then they called and wanted additional information and additional equity so that the loan would be at 49% LTV. Oh, and by the way that’s a full recourse loan. Additional information requests I can explain to the client, the LTV part is tougher. Recourse loans on development projects are expected, but on take-out multifamily financing? Did I mention they had a 1.30 DSCR?

ENTER HOLLY BRAY:I felt at one point that I needed to stop looking for new clients and deals, and focus on funding for the ones I had. Holly Bray and Love Funding changed that. She noticed one of my LinkedIn posts and called. We spoke at length about the market, my needs, their offerings, and she promised to send me some information. She restored my belief in bankers by answering my questions, getting me the information faster than promised, and then checking back with me to discuss the details of the various programs. Love Funding is a National, full-service, mortgage banking firm specializing in financing a broad spectrum of commercial real estate including multifamily, nursing homes, assisted living facilities, and board and care facilities. With Rose City’s focus on the multifamily segment it was their HUD 223-f loans that caught my eye.
These are non-recourse loans permitting LTV’s as high as 85%, and DSCR’s as low as 1.1765. You can finance repairs and upgrades up to $6,500/unit adjusted to the high cost factor for the market (Portland’s factor is 248%, or $16,120 unit). They’ll even base loans on current market income and consideration of improvements (proforma). Added benefit: 223-f loans feature 35-year amortization schedules.

For complete details about this program or other loan products, call Holly Bray at: 202-887-1849 or email: hbray@lovefunding.com. Isn’t it time to start working with professionals?

Note: Rose City Commercial Real Estate does not have an undisclosed interest in any of the firms we discuss in this column, nor do we receive compensation. We believe in superior service and support firms whose actions demonstrate that they do as well.

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Multifamily / March 30, 2009

David Moore to Deliver April CCIM Keynote Address

Mr. David Moore, CCIM will be the featured speaker at the Portland CCIM’s monthly luncheon on April 1st at the MAC Club. He and brother/partner Tom founded Equity Advantage Incorporated in 1991. Since then EAI has become the heavyweight of 1031 Exchange Accomodators. They have leveraged their thorough knowledge of contract law, taxation, and investment analysis with a customer centric focus to earn a reputation for getting the tough deals done.

MULTI-TALENTED: While I always learn new aspects of exchanges from listening to David, my hope is that his presentation will focus on his new firm’s services. For years the public was led to believe that Wall Street Mutual Funds were the sole options for 401K investments. David and Tom founded Equity’s sister company, IRA Advantage to empower the investors they’d worked with for the past eighteen years, and offer them a self-directed alternative. With IRA Advantage’s Checkbook LLC structure you receive a time tested procedure that literally gives you the flexibility of writing a check when the investment opportunity arises. No more waiting for a custodian to rationalize your next investment. They utilize proven procedures to enable IRA holders and ease of investment while maintaining their IRA’s integrity. I recommend preparing for your future, and calling your own shots by contacting IRA Advantage to set up your IRA Checkbook: 503.635.1031. I also recommend looking at multifamily investments for solid long term gains without wide fluctuations in value. I’ll go to a rodeo if I want a wild ride.

CCIM LUNCHEON TIME: 12:15 to 1:30 PM on Wednesday, April 1, 2009. Members $35/Guests $45; $5 off early registration.

LOCATION: The Multnomah Athletic Club is located at 1849 SW Salmon St. At over 550,000 Sq. Ft., The MAC is the worlds largest indoor athletic club. Phone: 503.223.6251 Web: www.TheMac.com

CCIM:There are fewer than 9,000 professionals worldwide that have earned the designation; many industry insiders refer to CCIM as the “Doctorate of Real Estate.” The CCIM Institute provides cutting edge training on a broad range of Real Estate Investment topics, as well as signifcant networking opportunities. The Portland Chapter meets at the MAC on the first Wednesday of each month. Brokers network and share “Haves and Wants” from 10:00 am to noon; top tier industry specialists speak at the luncheon, 12:15 to 1:30 PM.

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Multifamily / March 26, 2009

Demystifying Property Valuation: Cap Rate

There are over three dozen metrics for commercial properties that we use to evaluate assets as potential acquisitions, and to gauge their operational performance. Some are relatively intuitive: Rent/Sq. Ft., Cost per Door, Expense Ratio, Gross Income, etc. Commercial investors eschew using GRM (Gross Rent Multiplier) as that measures the income side only.

The first measurement investors look at to see if a potential investment warrants further investigation, is the Capitalization Rate Derivative, or Cap. The Cap is simply the percentage of Net Operating Income to the Purchase Price.

Cap %= Net Operating Income/Price.

As an example, an asset selling for $1,500,000 with $75,000 NOI is at a 5-Cap. ($75,000/$1,500,000 = 5%.) Understanding this ratio and its implications are key to informed investing, as well as managing operations. If you know that assets in a particular area are trading at 7-Caps you have a pretty good idea of what a property is worth if you know its NOI. Before we proceed further it’s important to clarify what NOI is.

Net Operating Income is: Ordinary Revenue – Ordinary Expenses.

The intent with NOI is to evaluate the efficiency of operations exclusive of other factors. On the income side we want to include actual rent, pet rent, late fees and other day to day items. On the expense side we want to include water, sewer, etc…the day to day operation expenses.

Exclude extraordinaryitems from NOI calcs. Examples include revenue (+) from selling timber rights, or the expense (-) of replacing a roof. These are still material when we look at a property in total…but they are not relevant in computing NOI. Also excluded from NOI are finance charges. Why? Because we use NOI to measure the effectiveness of operations. Example: A 3.87% loan with a 35-year amortization would make a poorly managed property look pretty good. Conversely, a well run property with a high interest loan might appear to be poorly operated.

I’ll discuss Net Operating Income Multipliers, the reciprocal of Cap in my next post.

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Multifamily / February 8, 2009

Demystifying TICs: The SEC

People often ask me about The Securities Exchange Commission and Securities in connection with creating Tenancy In Common (TIC) Agreements for real estate investments. I give them an overview, and tell them to see an attorney…a good attorney. In Portland Oregon, that means calling Reeves Kahn & Hennessy @ 503.77.5473. They’ll help you with TIC formation, Operating Agreements, and advice…at a fraction of the cost of other good lawyers.

The old joke is that The SEC is like the IRS…without a sense of humor.

But the reasons for creating the SEC and their mission offers no comedic relief:

“In the 1920s, some companies sold stocks and bonds on the basis of glittering promises of fantastic profits – without disclosing any meaningful information to investors. In some cases these statements were exagerations or puffery; in other casese the term fraud applies. These conditions contributed to the disastrous Stock Market Crash of 1929. In response, the U.S. Congress enacted the federal securities laws and created the Securities and Exchange Commission (SEC) to administer them.”

There are two primary sets of federal laws that come into play when a company wants to offer and sell its securities to the public. They are:

The Securities Act of 1933 (Securities Act), and
The Securities Exchange Act of 1934 (Exchange Act).

There are investments that, having met very specific criteria, are exempt from the above. Use a recommended attorney like R,K&H to structure your first TIC…and then everytime after that. Your attorney will give you detailed information about how the deal will be may legally be offered, restrictions on marketing, and advice to never even think the word “syndication.”

“With all the concern about SEC Regs, why do people even mess with TICs?”

The answer is simple. Half a dozen investors can combine their equity to acquire much larger assets than they could purchase individually. There are economies of scale that occur multiple times through the size range of multifamily properties. I know of one investor that started with an office whose desk was a door removed from the hinges…and twenty years later is doing $100 million deals. His effective use of TIC’s is a fundamental part of his success.

I’ve heard of several TIC Companies having troubles!

What you’ve read is true. But remember that a TIC is merely a way in which a group can hold an asset. Investments make money on their own merits and are not dependent whether it is held individually, as a partnership, or as a corporation. I suggest focusing on acquistion price, costs of operation, cash flow and appreciation at disposition.

In forming TICs, many investment coordinators insist on working with Accredited Investors exclusively. I’ll explain further in Chapter 3. I’ll also cover Operating Agreements in an upcomming post.

Are you ready for Client Centric Service? Contact Rick M. Bean now to begin investing…or to start learning about investing.

Rick M. Bean

Rick@rosecitycre.com

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Multifamily / January 22, 2009

Demystifying Client Centric Service

Investors are risk adverse…and “unknown” is synonomous with “high risk.” Being aware of this, The Client Centric Solution is to reduce the unknowns, reducing the risk…which delivers an increase in value to the client. (If there are too many unknowns, the potential buyer will make a very low offer…or not bid at all.)

The Problem…

A colleague had a client that was looking to invest in quads and smaller commercial multifamily properties. One opportunity that caught the investors’s eye was a fully occupied plex that had upgraded units and an assumable loan with stated payments and interest rate. The owner of the property was loathe to have multiple agents and investors traipse through the units on short notice and upset the tenants. He was so concerned about losing tenants, that he instructed his agent that potential buyers could only view the inside of a unit after the owner had accepted their offer. While this is somewhat common, without being able to view the property the investor could not verify the condition of the units, if they had a desirable layout, if they were upgraded, or if they were “repositionable” for increased income. The potential buyer didn’t know how much time was remaining on the loan. If it was a 30-year amortization loan with only 1-year left of the 10 year term he wasn’t interested.

The Solution…

I suggested to my friend that he contact the Listing Agent to find out how much time was left on the loan. He did, and found out that there was over 7-years left on the term and the bank was amenable to extending it on a qualifying assumption. That eliminated one form of risk for the buyer.

Second, I suggested giving the tenants a weeks notice that each unit would be filmed for insurance reduction reasons. About 1 minute is sufficient per unit. (I would also used that video to see if the insurance company would reduce premiums, so it is not a lie.) Being able to view the video permitted the potential client to make an informed offer with far fewer unknowns, and less risk. Should his offer not be sufficient, the owner had something to show future offerers.

I think my buddy owes me a lunch! What do you think?

The concept of eliminating unknowns to improve results applies to many aspects of business and life. I learned this years ago when I watched a co-worker answer the President’s question with: “I don’t know, and I don’t know when I will know.” That co-worker was permitted to seek opportunities elsewhere.

If you would prefer Client Centric Service, you can contact me at rick@rosecitycre.com

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Demystifying Investing, Multifamily / January 21, 2009

Review-The New Rules of Marketing & PR

The New Rules of Marketing and PR: How to Use News Releases, Blogs, Podcasting, Viral Marketing and Online Media to Reach Buyers Directly

by David Meerman Scott

See this book on Amazon »

I read this book on the Kindle Learn more

Recommended

A must read for anyone trying to market a company…if they can’t afford Super Bowl ads!
Spend fewer resources, get better results…I liked this book. A lot! Old world marketing included deliverables, mindshare and the opportunity to spend lots of money. In the old world of marketing we spent lots of time promoting our company directly. David Meerman Scott outlines the paradigm shift that has created the new rules of viral marketing. We’ll spend less time selling, and more effort on informing our current and potential clients. Using the new rules of Marketing and PR: if we do our job well, others will take up our cause on our behalf.

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Multifamily / December 27, 2008

Welcome

A truly client centric broker delivers greater value and earns loyalty…and that’s how I run my business:

Offering more than just “services for commissions.”
Assisting clients with developing their risk profile, and investing accordingly.
Evaluating their portfolio, seeing if they have adequate equity build-up to warrant re-investment.
Helping them assess their property manager, property tax rates and insurance costs.
Performing Cost Segregation Feasibility Studies on both held and newly acquired assets.
Actively seeking to lower costs to boost NOI…directly increasing asset values.
Assisting with Due Diligence.
Providing a knowledge base of lenders with the best rates and terms for the specific needs of the client.

I have included links to properties we have available on this site…but most of our space is devoted to assisting visitors in staying current with market conditions…not selling. That’s why we’ve added a word of the day, a spot to review real estate and investment books and more.

Feel Free to finish your Holiday shopping from home by using my direct link to Amazon.com.

We hope you enjoy our blog and invite you to return to review our daily updates.

Sincerely,

Rick M Bean

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Multifamily / December 16, 2008