All Forum Posts by: Paul Khazansky

As someone who's done a bit of development in the downtown Baltimore area, here is my two cents on the subject.

According to Downtown Partnership (a Baltimore think tank that gathers and analyzes data on various real estate asset classes), Baltimore has a demand capacity for 5,800 new apartments between 2012 and 2017. That number is largely driven by new jobs being created in downtown, and a trend known as urbanization or "manhattanization" where across the country we see more and more people who prefer to live in dense, urban areas. All in all, based on number of apartments in the pipeline and what's already been introduced to the market since 2012, we believe there is about 18 more months where there will be strong demand for apartments. Come 2016, demand will likely soften, given a huge number of new apartment projects that are to be delivered in the next few years.

For investors interested in the multifamily space this means that there should be more emphasis where multifamily acquisitions/development should be taking place, with a focus on a more desirable neighborhoods, such as Federal Hill, Fells Point, Upper Fells Point, etc., areas that are likely to be more resilient to rent reductions once the city will become more saturated with apartments in the market.

As far as heated cap rates go, I agree, they've fallen A LOT in the last 18 months alone, so it makes it that much more important to be prudent in your underwriting. For example, in our recent deal in south of Federal Hill we projected rents per square foot lower than what's currently in nearby class-A buildings by ~15-20%, which gave a level of comfort to investors that decided to participate in that transaction. So keep a close eye on supply vs. demand of apartments in Baltimore, and stick to stringent underwriting criteria when vetting potential acquisitions, and you should be ok in the long term.

Paul Khazansky

www.poverni.com

I have a copy. Excellent guide.

Just to be clear, when I said 80 units, I meant an on-site property manager. You can certainly afford to have an off-site property manager with a handful of units.

i think 80 units is a bare minimum, unless you are located in a pricy market such as Seattle, where you may be generating enough revenue with fewer units

Raj is honest and knows the Baltimore market really well

443.668.8814

Ray Alcorn's the Definitive Guide is by far the best I've seen. It goes in significant depth regarding most layers of commercial real estate investing.

Hey Mark,

If you are talking IRR return, it is very achievable. However my impression is that you are targeting cash on cash return, and you'd be hard pressed to achieve levered 10-15% Coc in today's markets.

Paul

An older property, which may or may not prove problematic down the road, but sounds good overall.

How were you able to raise all the equity? Thanks.

So you are projecting a 2x equity multiple for your investors, which is pretty decent, given small rent growth and a relatively high exit cap rate (higher than the cap rate you used to acquire the asset, if I understood you correctly). Where does that land you in terms of IRR over a 5-year holding period? Also, whats the construction year of the asset?

certainly value add multifamily is harder to come by now vs. even few years ago. I'm looking across 6-7 states, and there is a shortage of such inventory everywhere, not to mention compressed cap rates.