Are you a buyer or sitting out the multifamily market?

[Arn Cenedella]

There are certainly legitimate reasons to sit out the current multifamily market:

1. Economic uncertainty with the possibility of recession

2. Increasing interest rates

3. Negative leverage due to cap rates lower the debt costs

Can’t argue with that!

But I am and continue to be a buyer for apartment buildings in the Carolinas.

Why?

1. One must put their capital somewhere. In my mind Carolina MF properties are as good a place to invest as one can find.

2. I know the markets I invest in.

3. I have a long term investing perspective and don’t pretend I can time the market -  been doing RE for 45 years and I can’t time the market - too many variables outside my control to do so.

4. The lack of affordable housing is at an all-time high and this over demand under supply won’t change anytime soon if ever.

5. Buy with proper leverage ( yes it may reduce returns a little) and with ample cash reserves ( yes it may reduce returns a little), operate the property in a professional manner and you will ride out some turbulence and profit in the future.

I’m still a buyer.

What is your perspective?

[Brian Burke]

Definitely not buying.  Over the last 18 months I sold about 2,500 units and couldn’t be happier.  Still have around a thousand units, all class A in great markets with low leverage financing so I feel well positioned to survive or even thrive no matter what the markets throw our way.

Back in 2004 I couldn’t find any reason to buy anything and that turned out to be good intuition.  Started buying again in 2008 which also worked out well. That meant doing very little for almost 4 years, and that 4 years was a blood bath for people who thought it was always a good time to buy.  This time I see it a bit differently.  Market fundamentals are pretty good, but investment opportunities, not so much.

Multifamily got severely overbought for the last couple of years, compressing cap rates down…appropriate for that moment when rent growth was double digits and interest rates were nearly nothing.  But that won’t work now—rent growth will soon come to a halt as overall inflation competes for tenant’s surplus income, and interest rates are increasing borrowing costs.  OK, fine, if the deals work using underwriting appropriate for today’s reality there is still money to be made…I get it.

But the deals don’t work.  Sellers are still stuck in yesterday’s reality, and even to the extent that they aren’t, their expectations are still higher than where a careful buyer needs to be right now.  Some sellers are still getting lucky because some buyers are still underwriting too aggressively…which means that selling prices are still too high. 

Long story long, I’m underwriting deals but not buying.  Perhaps “money has to be invested somewhere” but I’m perfectly happy with it being in cash, ready to take advantage of opportunities when conditions are right and prices are in line with reality.  When will that be?  Too early for me to tell, but when we’re there, I’ll be back to buying.