Underwriting Changes on Multifamily Properties - San Diego

[Daniel Frye]

Hello all,

I am underwriting an acquisition of an apartment portfolio in San Diego. It is a unique opportunity to purchase from a distressed seller with almost all units completely renovated. In a normal world, this would make all the sense in the world even with flat rents for a period of a few years!

But now, I am unsure how rents will respond year over year. That is my main concern. I believe rents will grow over the course of a 10 year+ holding period due to our normal supply/demand issues here, typical inflation, as well as (my perspective) further inflation due to increased money supply eventually working its way into the real economy.

In talks with a couple property managers, they think there is a possibility of rents dropping 3-10% year over year from 2020-2021. What do you all think? And what other underwriting assumptions are you rethinking when looking at multifamily acquisitions in the current market?