Cap Rate Compression Big Time??

[Jason Merchey]

I received an investor summary from a very reputable, perhaps "slightly conservative" operator in the MF space. In this offering, the "average annual return" is 10%. They don't calc IRRs, but frankly, with a 1.7x equity multiple over 7 years, I'm not sure that the nature of an IRR would even increase that to 11%!

Anyway my question is, are you seeing IRRs that low on Class A and B multifamily syndications -- when operators can get sub-3%-interest rates? When apartments are expected to have a banner decade? And I'm not talking about primary markets like LA or DAL, talking about cities that are secondary or gateway markets. 

Boy if this projected return IS inclusive of the gains upon sale (and I did ask the sponsor that question promptly by email), then we are talking about some very notable and disappointing cap rate compression, huh?! I can't quite imagine why you'd send out projections that don't take into account the gains upon sale, but then again I can't quite picture a very reputable sponsor putting out a 10% return apartment syndication, etiehr!

No this sponsor is not greedy and is not taking like 40% of the profits. They are conservative in that way as well.

I'd love to hear from @Brian Burke from Praxis Capital and @Travis Watts from Ashcroft Capital to see where you're projecting IRRs in late 2021.