Timberlane Partners’ Post

It's a smart time to buy multifamily assets. Not only are prices low, but rents are expected to jump in the coming years due to the anticipated lack of supply due to today's high-financing costs suppressing construction starts.

It's a smart time to buy multifamily assets. Not only are prices low, but rents are expected to jump in the coming years due to the anticipated lack of supply due to today's high-financing costs suppressing construction starts.

Do I need to Buy a Property Next Year? Commercial real estate (CRE) is in the midst of an ongoing correction. Valuations are already down about 15% to 20% for multifamily assets, and it’s unclear when the market will bottom out. Credit risk, slowing rent growth, and high interest rates are still taking their toll. Due to this ongoing uncertainty, most multifamily investors I know have slowed their acquisitions or even stopped completely. Many players want to wait to see what happens. Ideally, they can perfectly time the bottom of the market and jump back in. The problem is that no one knows exactly when the market will bottom out. So, how does an investor get into this market? How do you take advantage of the opportunities that will exist in commercial real estate in the coming years without taking on excessive risk? A sensitivity analysis could help. A sensitivity analysis is a simple step in your due diligence and underwriting that can help you test your underwriting assumptions and evaluate risk and reward during this uncertain time. I’ll explain how it works and how you can create one for yourself. Commercial Valuations Before we get to sensitivity analyses, I need to briefly explain how most commercial assets are valued using cap rates and net operating income (NOI). A capitalization rate (cap rate) is a measurement of market sentiment used to benchmark income-producing properties. Or, in plain English, cap rates reflect how much investors are willing to pay, as a percentage of the property’s income, to buy a property. Generally speaking, buyers want high cap rates (lower valuations), and sellers generally want low cap rates (higher valuations). Cap rates are relative to specific areas and asset classes and are influenced by investor demand. So, the cap rate an office building in Cleveland trades for will be different from a multifamily complex in Orlando. If there is low demand for a particular asset type, cap rates will rise. If there is strong demand, cap rates fall. To estimate values in CRE, you can use cap rates and NOI. NOI is a measure of profitability calculated by subtracting a property’s operating expenses from the gross income. When you know a property’s cap rate and NOI, you can estimate valuation. Valuation = NOI/Cap Rate As an example, if you have a property with an NOI of $200,000 and the cap rate is 5%, the valuation will be about $4 million. Sensitivity Analysis The challenge with using cap rates for valuation is that the market cap rate can change. You may buy an asset at one cap rate, and then over the course of your hold period, market sentiment shifts, and you are selling at a very different cap rate. And this really matters. If cap rates stay steady or fall over the course of your hold period, great! That will help your returns. But if cap rates rise, that could damage your valuation. 

CLOSED! NorthPeak Commercial Advisors is pleased to announce the sale of 1050-1058 Pearl St., Denver, CO 80203. Dan Hawthorne of NorthPeak Commercial Advisors worked with the buyer in this transaction. "In 2022, these two buildings were appraised at $5.5M, reflecting the peak of the market," stated Hawthorne. "However, current conditions show a significant shift, with inventory levels remaining high and many properties not reaching the closing table. This portfolio exemplifies the market's adjustment, where properties are typically being discounted by 15% to 30% from their 2021-2022 values. Priced at $4M, this represents a 27% discount from the market’s peak two years ago. I had the pleasure of securing these properties for my client, who stands to benefit significantly given their favorable purchase price and the excellent condition of both buildings. These properties have been carefully maintained over multiple generations, reflecting the pride and care of the previous owners. The buyers plan to renovate majority of the units while preserving the buildings' historical integrity, alongside upgrading the electrical systems and replacing all galvanized plumbing.” For more information on this investment or current market conditions, please contact Dan Hawthorne at (406) 531-4246 or Dan@NorthPeakCRE. READ PRESS RELEASE: https://lnkd.in/gg-HD6GZ SALE HIGHLIGHTS 🏠 Address: 1050-1058 Pearl St., Denver, CO 80203 💰 Sale Price: $4,000,000 📅 Close Date: September 6, 2024 📐 Property Size: 17,258 SF ($232/SF) 🏢 Units: 22 ($181,818/Unit) 🏠 Property Type: Multifamily #sale #sold #closing #realestate #northpeak #northpeakcre #multifamily #property #denver #denverrealestate

Dallas-Fort Worth continues to rule commercial real estate market  

Owning retail property is just like owning multifamily, except: •Less management •Less tenant turnover •Tenants pay on time •Fewer sharks competing for deals •NNN Leases •No rent control •Tenants invest in your property •Higher yields

East Village Apartment Tower Sold at Discount REAL ESTATE: Carlsbad Firm Buys ALX for $137M By Ray Huard SAN DIEGO – A high-rise apartment building near Petco Park at the edge of East Village, ALX, has been sold for $137 million in a multifamily market that is showing signs of recovery. Built in 2018 by Trammell Crow Residential and UBS at 300 14th Street at the western edge of East Village near Petco Park, the 19-story ALX ushered in a wave of apartment towers that were built downtown before high interest rates and rising construction costs made construction of new apartment towers impractical. The property was bought in July by Virtu, an investment firm based in Carlsbad. Michael Green, principal and founder of Virtu, said that ALX cost $160 million to build. He said that Virtu was able to get the property at a discount because the apartment market is so soft right now, although he expects it to start improving heading into 2025. “It’s really just where the market was trading, based on how the market has changed over the last two years as interest rates rose,” Green said. “I think it’s started to come back now.” Typically, institutional investors, such as banks, savings and loan associations, insurance companies and employee benefit plans regularly buy and sell property like ALX, but Green said they’ve been sitting on the sidelines “for the better part of a year now.” “For the past year, we’ve seen what we call institutional absence,” Green said, but those that own property sometimes opt to sell it at a loss for tax purposes. “We try to take advantage of this brief trend,” Green said, adding that Virtu also bought a Seattle high rise and is buying one in Chicago under circumstances similar to its purchase of ALX. https://lnkd.in/djZzHbxE #apartmenttowers #apartments #luxuryapartments #realestate #development #downtown

CLOSED! NorthPeak Commercial Advisors is pleased to announce the sale of 1025 N Clarkson St., Denver, CO 80218. Hunter Schaefer and Jack Sherman of NorthPeak Commercial Advisors worked with the buyer and seller in this transaction. "We like to think this was an example of the importance of hiring the right brokerage in a challenging market," stated Schaefer. "After 37 tours, we were pleased to present the Seller with an all cash 1031 buyer sourced by internal NorthPeak marketing. The Buyer is an owner occupant from out of state who was looking to move into core Denver. The deal is an older vintage built in 1896 and featuring a few sprawling floorplans from 1,100-1,400 SF. Selling points for the deal were excellent walkability, more than 1 parking space per unit, and recent improvements to the roof and garage." For more information on this investment or current market conditions, please contact Hunter Schaefer at 925-989-8930 or Hunter@NorthPeakCRE.com. READ PRESS RELEASE: https://lnkd.in/gbBGdXGT SALE HIGHLIGHTS 🏠 Address: 1025 N Clarkson St., Denver, CO 80218 💰 Sale Price: $1,150,000 📅 Closed Date: June 27, 2024 🏢 Total Units: 4 ($287,500/Unit) 📐 Property Size: 4,425 SF ($260/SF) 🏠 Property Type: Multifamily #sale #sold #closing #realestate #northpeak #northpeakcre #multifamily #property #denver #denverrealestate

On the Hunt. #TuesdayCRE #CommercialRealEstate #CommercialDebt #CommercialInsurance The US apartment market with the most aggressive development can be found in the Deep South city of Huntsville, Ala., according to RealPage, and it has claimed that title since 2022. In the year-ending 1st quarter 2024, roughly 5,900 units delivered, expanding inventory a phenomenal 15.9%. And there are another 9,895 units in the construction pipeline, with 6,900 of those units projected to complete by the end of Q1 2025, pushing inventory growth another 16.2%. "That ratio ranks as the #1 rate for under construction inventory growth across the country, outpacing big markets like Dallas, Houston and Atlanta". All together it has about 42,900 existing units, comparatively smaller than Birmingham, which has 81,145 existing units, and Mobile/Daphne with 43,559 units. The growth, though, has had the expected effect on occupancy and vacancy rates. In April 2024, Huntsville's occupancy rate was 93.7%, about 270 basis points below the five-year average. #SourcingAndSelling #SellingAndSourcing #Retwit #2024 ~ If you have real estate, and you are willing to entertain offers, have debt to refinance, or in need of insurance for your properties, reach out to me with the details: Lance@RealtyByLance.Com 305.203.2070 ~ Contact Us for Commercial Investments, Financing and Insurance. ~ Multifamily, Industrial, Hotels, Office, Retail, Development Sites, Plus. #ListWithLance #LanceLoans #LetLanceInsureYou #CRE #Owners #InvestmentProperties #Multifamily #Industrial #Hospitality #Retail #Development #Construction #Commercial #CommercialTransactions #CommercialFinance #CommercialInsurances #CommercialTitleAndClosing #CommercialProp https://lnkd.in/gCZyBGFb

What is the current state of the Chicago Commercial Real Estate Market? Some long-term owners are ready to sell. The market is the best it has been in the past two years, and the recent decrease in interest rates is pushing some to consider putting their properties on the market. Historically, Q3/Q4 has a large concentration of 1031 buyers who have recently sold a property in Q2/Q3. These are some of the best buyers to work with as they must close to satisfy their 1031 exchanges. Newer construction multifamily properties are in demand. Many investors want newer properties with less maintenance and immediate cash flow. Some of these opportunities have value to be added through mark-to-market on rents, management upside, or other opportunities.