All Forum Posts by: Sid Naik

@Amit M. @Johnson H. I think the rent drop of 25% + in sfo will take 6 months to translate into lower valuations . Currently landlords might be in a freeze state and still grappling with reality . Otherwise I don't know how you can just valuations MF Price = NOI / cap rate and NOI is 25% down . Does this formula not hold good for multifamily valuation anymore ?I don't think rents will stabilize so fast ,the trend is just emerging of working from suburbs ,in my humble opinion it will reverse back but changes take a while to overturn and hence it could be a buying opportunity for MF while this trend of working from suburbs holds on ( it might take 2-3-4 years to turn back maybe ).

@Amit M. let us assume that in Mission rents is down by 20% . Will MF pricing be down also by 20% assuming this is not a rent controlled building ? I am still trying to get clarity on the income valuation of multifamily .

@David Song regarding prices going up are you referring to Multifamily(5 + units) prices ?

MF prices are based of income it produces which is down . that is why i am asking . if ur talking about under 5 units then ok understandable .

@Johnson H. 

I was not worried about my condo but just surprised . 

At least in santa clara the drop is in line with the head line numbers and for regular apartments not new construction , my condo was built in 2005 .  

No seller is going to be motivated when valuations are down . Even in 2009 nobody wanted to sell willingly . For example There may be a restaurant owner who has lost his income by 50% and bleeding on the MF who decides to sell .when he sells he will have to go my the income valuation . the pain may take time to reflect which is we may not see the drop in price till march 2021 maybe .  It is also very sudden so even realtors are surprised . i was talking to somebody last week who refused to believe rents are down in santa clara .

I finally managed to rent my unit for 20% less . Below article from bloomberg citing 31% down in sfo , 19% down in santa clara ( which is correct from my first hand experience) .

https://www.bloomberg.com/news...

If commercial properties are based on NOI and cap rate logic then the price has to come down ? 31% NOI down in sfo and price not coming down does not seem logically to me . Maybe transactions are not happening as landlords will be in denial too for some time so difficult to get data on that front so soon .

Again this is specific to multifamily ( 5+units) not for individual homes .

5+ multifamily in Santa clara . 

MF ( 5+ units ) valuations are dependent on the rent prices which are declining . That's my reasoning but going by Jonathan's answers there is lot of money in bay area and they will ignore the income valuation and bid for higher prices .

below 5 unit are dependent on comps and those properties i don't reason for decline yet , in fact SFH are dong quite well actually .

@Maria D'Aura That is exactly what i am talking about . The rent drop is obvious at least in santa clara .  however as you timed market and moved out I am waiting to buy more here as I am expecting the valuations to drop for Multifamily which are dependent on rental income . but not everyone agrees here that valuations will drop even though rents have fallen .

Thanks all for the great comments . Appreciate it .

This is my 4th week trying to rent my condo. The condo is top notch , trust me on this , there is nothing wrong in product ( location, amenities ,age all ticked off ) .the neighboring huge apartment complex has reduced rents by 25% and on top of that 1 month rent free . This is in one of the best area in santa clara ( Rivermark) .If you look at online stats there is realignment where rents are dropping in high demand expensive areas and increasing in areas like livermore . If a property comes to sell in Santa clara it will be priced on the prevailing rents and cap rate . From what Jonathan is saying people may bid up this price so it won't be strictly based of cap rate and NOI . Kind of hard to understand the logic but I am a newbie in MF so can't comment much on it . However rent drop is nothing i have seen in Santa clara for the last 10 years and is real .

@Johnson H.

I agree there are long term landlords who are having tenants paying below market rate .

IF they were to sell the property for whatever reason won't they be asking valuations based on current rents ? Of course you may have to factor in the payment to the tenant to move out .

Also agree on the comment that bay area is flush with cash . so ur saying people would buy at higher valuations by lowering the cap rate ? as NOI is going to be lower due to rent correction than last year

basic questions but just trying to understand the logic .

@Arlen Chou  To be frank , I have not done any multifamily transaction so far .However the opportunity I see may be coming is from small time landlords  who have bought in the last 2 years at rents and valuations  20% more and if they have to sell for some reason , they will need to lower their price from what they bought . Isn't that a correction ? If i were to buy same MF last year i would have to pay 20% more . 

cnbc article also showing 20% drop in rents .

https://www.cnbc.com/2020/10/0...