Where is the distress with apartment owners?

[Greg Scott]

I’ve been hearing for months that we will soon see a wave of distressed assets and forced sales. I’ve heard of numerous people raising “opportunity funds” to take advantage of what they call the “fire sale pricing” that will soon be here.

I agree that there are more distressed sellers than in the past, and we have seen pricing become a little more reasonable than it was in 2022. On the other hand, there appears to be a lot of money looking for deals. Here is one proof point.

This past week a friend of mine was putting an offer in on a Midwest apartment portfolio. The winning bidder outbid him by more than $1M and well above broker whisper numbers. The winning bidder offered a lot of non-refundable earnest money. By “a lot” I mean 100% of the purchase price was offered as non-refundable earnest money. Slam dunk.

Is 2024 more frothy than 2022? This is the most aggressive offer I have heard of.

[Arn Cenedella]

@Greg Scott

Some (many?) people get great joy talking doom and gloom and Armageddon.

I’ve been in the RE biz since 1978 and been thru several economic and market cycles.

Stagflation in the 70s, 17% home loan rates in the early 1980s, the failure of 1/3 of American Savings and Loans in the early 1990s, the dot com boom the dot com bust, the subprime crisis in 2008, Covid………I’m probably forgetting a few. 😀

So I speak with some actual first hand investing experience.

It’s is never as good as some think and it is never as bad as some think.

While some big name syndicators have crashed and burned, the truth is this only represents a small share of the market.

The overwhelming number of MF properties are owned by long term owners with fixed rate debt and Billions in Equity - those people are not in trouble.

I believe perhaps 10% of the MF stock is owned by syndicators. Let’s say half of those have floating rate debt and are in trouble, that means only 5% of the MF properties are in trouble AT MOST.
So there is some distress but it is limited.

Values may have dropped 20% but for long term owners they don’t care. They know value will over the long haul go up.