Joe,
Apartment building owners are indeed generally more sophisticated, but they are still fallible and fall prey to human failings, thus creating opportunities for deals. The situation you speak of where you have “sophisticated” apartment owners whose lives and businesses are perfectly in order, and would never sell except for top retail value, yes that does exist, but there are plenty of other apartment property owners who don't have perfect business planning, who do make mistakes, and get themselves into situations where their property becomes destabilized .
This happens with 20 unit buildings as much as it happens with 400 unit buildings. To say all apartment building owners are “sophisticated”, meaning they are completely rational and disciplined, and run their properties flawlessly all the time, and the only ones that don't are doctors and dentists who have inadvertently stumbled into a deal, it's just not reality.
You often have successful business people who think they can translate expertise in one area of business into real estate, which sometimes they can, but more often they can't. Heirs inherit large blocks of well run apartments, and then proceed to run them into the ground. Business acquaintances partner on large deals, thinking “it'll be fun”, then realize there are a lot of decisions to make and they can't agree on anything. Soon they're not talking to each other, the vacancies are increasing, and it's a mess. There are so many situations that turn apartment building ownerships into a financial death spiral, the sophistication of the principals doesn't really rate as a factor.
The other thing I'd like to point out is, commercial brokers are only one sector of the market, they are not “the” market. They do well creating exposure for the properties they have listed, but there is a whole world of business that takes place outside of brokers Plenty of apartment buildings sell without a broker involved. A lot of multifamily transactions come together purely through networking, people talking to each other. If you are an active wholesaler, you are free to cold prospect apartment owners; walk straight into the leasing office and ask to speak to the owner. Almost no-one does it, but it's very effective. There are plenty of ways to find under valued apartment deals and make markets for them. Going through a broker is not the only way to find deals.
Also, there is this notion of a “deal” being static you are putting forward. If you are a buy and hold apartment operator and your core competence is stabilizing properties, this is understandable. If marketing is not your strong point, and finding deals is something you would rather leave to someone else, you are basically limited to what a broker thinks is a deal and hope they bring you something good.
On the other hand, if you are an apartment wholesaler, whose core competence is putting great deals under contract so a buyer will happily pay you an assignment fee to take over your position, your understanding of a deal is much more fluid. The deals you do with sellers are driven by what you know a hot deal is going to be for your buyer.
A fact of the marketplace is, even the most flawed property “will” sell if the price is low enough, or the terms are generous enough. So for any property, there will be some price and/or term configuration where a transaction can take place. It's a matter of a) the seller becoming motivated enough to accept the terms, and b) how long it takes for that to happen. When it does happen, the apartment wholesaler gets a profitable deal under contract, and the buyer happily pays an assignment fee to take it over.
Even working brokers this is how deals are developed. Rarely is your offer accepted on the first go round. But you stay in touch with the broker while the seller plays out their unrealistic price expectations with buyers who don't close. After the deal not closing a fourth (or fifth) time, the seller has had enough and price comes down. Now your offer has appeal to the seller, and you get the property under contract. This may take 12-18 months, but your total time into the deal is relatively little, and the assignment fee makes it worth the effort.
It's a mindset issue. Deals are not scarce the way you think they are. When you focus on marketing, and try to “find the market” for any given property, deals are all over the place.
Wholesaling apartment buildings is a completely viable plan. There have always been people doing it, you just never hear about them. The reason it will continue to be viable into the future is that apartment owners, while they may be sophisticated, are still human, and life is unpredictable. Brokers alone are not “the market”, and apartment wholesalers pursuing their enlightened self interest will always uncover deals and be able to apply win/win solutions in a way that fiduciaries, like brokers, can't.
There are plenty of apartment deals waiting for an apartment wholesaler to come and make market for it. There always will be.
