Multifamily Fire Sales?!?

[Ashley Wilson]

Where are all of the deals everyone said were coming in multifamily?

Over the past six months, numerous people talked and fantasized about all of the discounted deals that they planned to scoop up in multifamily. It was also the reason why many people decided to sit on the sidelines - uncertainty of where the market was headed coupled with the hope that when the bottom presented itself they could maximize their purchasing power.

So where are these deals? Are they still coming? And if so, when?

While I do not believe we have seen the last of the foreclosures, as I recently heard that 60% of multifamily bridge loans nationwide are not paying their mortgage, I am skeptical on whether or not we will see a massive fire sale of multifamily properties. Why? I thought you would never ask.

There is a famous saying by George Santayana, "Those who cannot remember the past are condemned to repeat it" that applies nicely to the situation we find ourselves in today. In 2008, during the housing crisis, banks started foreclosing on houses across the country. While most people thought banks prioritized foreclosing on houses that had not made their mortgage payments in months, banks actually prioritized homes that had a lot of equity. Banks also recognized that in just two years most properties rebounded in value. It is that rationale that has guided my thoughts on what I think is and will continue to happen with multifamily.

Specifically, I think for most distressed properties, the banks are actually going to hold the property. Most people would say to me now, "Banks are not in the business of owning real estate." And I would say, "On most investments they are the largest investor." The difference is they are not the operator. So what do they do about operations? Banks are currently reaching out to good PM companies and Owner/Operators to see whether or not they are interested in taking over the property. In other words, the property will never hit the market during this down cycle, but instead hold steady until the market rebounds.

For any property that a bank wants off their books, most are being sold in a short-sale capacity. What about the properties that are headed to auction? These properties represent the smallest amount of distressed assets.

So if you are waiting for a massive wave of distressed properties to hit the market, you might be waiting for a while...

What are you seeing in your market?

[Nathan Harden]

Hello from the other side of the country!

Over here we are seeing minimal inventory as a whole. SF and MF. Personally, I think we are seeing quite a few MF properties hit the market in my area because Washington is becoming harder and harder to be a landlord. They are pushing rent control, some of the laws that the cities and state are pushing through are down right Anti Landlord.

This is turn is creating a lot of people that are just hungry to get in to the game, they see these properties hit the market but have no idea about the laws that they will come across. 

In terms of REOs, I can't speak from first hand experience of the 2008 disaster but I will say this from personal experience with dealing with REOs right now. Banks are listing some (not all) close to market value and not budging on price for the first 30 days. Then they lower it a little (still not enough meet on the bone for an investor) But in my opinion, I think they are trying to get home buyers to bite on the properties before they decide to sell at investor purchase prices. So they are playing it slow and in no rush to give away deals without it first sitting on the market for a SOLID few months. Lets be honest though. REOs (atleast in my area) do not hang around long enough for a smaller time investor that's using Hard Money, paying points, carrying costs, etc. to make their numbers work for them to make a solid profit. Cash is King and always will be.