Here’s Why Deals Will Increase in Q4

Here’s Why Deals Will Increase in Q4

There is more certainty around valuations from both buyer and seller.

There is less buyer/seller disconnect in the marketplace as the frequency of interest rate hikes and the size of those hikes have decreased, according to Marcus & Millichap.

Buyers and sellers are beginning to better understand the value of the real estate, John Sebree, Senior Vice President, Multifamily Housing Division, Marcus & Millichap, said in a recent news video.

 

“Buyers and sellers are getting much closer to the middle ground or that common place where they can agree on the value,” he said.

“And as a result, combined with the amount of fundamental activity that we’ve seen increase over the past 90 days, we are looking at the fourth quarter and feeling pretty confident that the amount of transaction velocity and the number of closings we’re going to see in the marketplace will increase substantially.”

 

Because the number of buyers is somewhat limited, they can do deals with little competition, according to Sebree.

“We also know there are a tremendous amount of funds on the sidelines waiting for the opportunity to jump back in, which will increase the competition for available assets,” he said.

There’s been substantial uncertainty on underwriting lately, such as in taxes, insurance, and utilities. But that has calmed down a bit lately, he said.

 

“Looking ahead, we know the number of properties that are going to be coming to market is going to increase,” according to Sebree. “We know that simply from our BOV activity and our conversations with owners. We also know, based on our conversations, that the number of buyers in the marketplace is increasing and will continue to increase.”

He said interest rates are one factor that must be monitored because of its uncertainty. 

“But overall, I’m very optimistic about what I see on the horizon,” Sebree said.

 

Source: Here’s Why Deals Will Increase in Q4

https://www.creconsult.net/market-trends/heres-why-deals-will-increase-in-q4/

Multifamily Market Updates November 2023

Multifamily Market Updates November 2023
eXp Commercial Multifamily Division: Chicago

Cooling Future Deliveries Set the Stage for a Rent Growth Comeback

Cooling Future Deliveries Set the Stage for a Rent Growth Comeback

CALABASAS, Calif.--(BUSINESS WIRE)--Institutional Property Advisors (IPA), a division of Marcus & Millichap (NYSE:MMI), published a new national report, Pullback in Multifamily Construction Starts.

“As access to development capital across the country diminishes and rent growth slows, multifamily starts are cooling,” stated Greg Willett, first vice president and national director, research services, IPA. “Among the 15 markets that account for over half of the nation’s ongoing apartment construction, building starts in the second quarter of 2023 totaled just under half the average volume recorded during the previous two years.”

Pullback in Multifamily Construction Starts research report provides investors with the latest apartment construction research and analysis, including key findings such as:

• The largest declines are in Texas, with second quarter 2023 project initiations in Houston, Austin and Dallas-Fort Worth at less than one-third the earlier volume. Slowdowns are also pronounced in Philadelphia, Denver, and Washington, D.C.
• Pullbacks in new construction that mirror the average for the 15 markets under study are in Los Angeles at 52%, Seattle at 51% and Atlanta at 50%.
• Markets where the pullback in construction is somewhat slower to materialize are in Florida and the Carolinas. Raleigh-Durham is the single location in the analysis where apartment construction starts in Q2 2023 remained in line with the volume recorded in early 2021 through early 2023.
• Given that the typical apartment property takes 18 to 24 months to complete, delivery volumes should begin to wane in early 2025 and then drop notably during the last half of the year.

“Rent growth is likely to regain momentum as early as spring 2024, when the normal seasonal upturn in leasing velocity should coincide with obvious signs that today’s new supply excess is temporary,” added John Sebree, senior vice president and national director of the firm’s Multi Housing Division. “Price increases should prove robust during 2025.”

Just over one million apartment units are now under construction across the U.S. However, building is not booming everywhere. About half the total construction pipeline is in 15 markets, where a slowdown in local starts will impact overall statistics. Most of the primary building centers are in the Sun Belt, but there’s also notable activity in Washington, D.C., Los Angeles, Seattle and Philadelphia.

Apartment construction starts in the 15-market core building locations skidded to 30,800 units in the second quarter of 2023. That start volume is off 52 percent from the quarterly norm of 64,200 that was sustained for nine quarters from early 2021 through early 2023. Absolute peak quarterly starts totaled 81,500 units from April through June 2022.

Given that the typical apartment community takes 18 to 24 months to complete, delivery volumes should begin to wane in early 2025 and then drop notably during the last half of the year. Rent growth seems likely to regain momentum as early as spring 2024, when the normal seasonal upturn in leasing velocity should coincide with obvious signs that today’s new supply excess is temporary. Price increases should then prove robust during 2025.

https://www.creconsult.net/market-trends/institutional-property-advisors-releases-national-multifamily-construction-report/

Looking for signs of a sales boost in the multifamily sector

Like all commercial real estate sectors, the multifamily market has seen sales slow since the Federal Reserve Board started increasing its benchmark interest rate. But are there signs that sales activity might pick up next year? There might be.

Let’s start with the big question: How have higher interest rates impacted the multifamily sector?
Jeremy Morton: The interest rates have a direct effect on pricing and how buyers underwrite buildings. Sales activity has tightened. It’s more important than ever for buyers to have a good relationship with lenders, whether those lenders are local or national.

I did a handful of valuations in the spring in which interest rates were almost a point lower than where they are today. Those were brought to market and we slowly saw the interest rates tick up. Obviously, that has a correlation on pricing. There is a gap between buyer values and seller expectations. That’s why multifamily sales were slower in July and early August.

From what I understand, though, you have seen signs that we might see at least a small increase in sales activity in the coming months.
Morton: It is deal-specific. But in the last few weeks, we have seen an uptick in buyers interested in seeing buildings for sale and writing offers. That also has to do with sellers correcting their expectations. We have seen a few price reductions in listings in the last month. Buyers are active. It’s all about bridging the gap on the pricing.

We are still putting deals together. But things are moving a little slower. In terms of financing, it is taking more time to get everything lined up. No one is just slamming the financing together. Everyone is spending more time and due diligence on the front end, which is the key to getting deals done.

Activity is still solid, but there is a little more hesitation, a little more going over deals with a fine-tooth comb. Instead of touring a building and making an offer that afternoon, buyers might spend a solid week reviewing the deal with brokers and lenders, checking the numbers.

Are you seeing that gap between what buyers expect to pay and sellers want to sell for starting to tighten?
Morton: I definitely am. Previously as brokers, we could market these properties on future rental growth. We can still do that, but it has to check out on current cash flow. Six months ago, as long as buyers were breaking even on their current cash flow, that was fine. Now we need a little more cushion. Some lenders are requiring nine months of reserves to make sure there aren’t any delinquencies.

We are trying to be more transparent with everyone today, sellers in particular. Before sellers could shoot for a higher number and hope there would be a buyer who falls in love with the building. Today, you need to be more careful on how you underwrite buildings, otherwise you’ll be left with a stagnant building that won’t sell.

In the late spring and early summer, we had honest talks with sellers to help bridge that gap.

How strong is leasing activity in that sector? Interest rates haven’t slowed leasing demand, right?
Morton: Leasing is doing well. The new-construction multifamily buildings that I have been watching have been leasing out quickly with little to no concessions. The units with a greater number of bedrooms take a little longer to lease. There’s just a smaller number of renters looking for that size of a unit. But the one-bedroom and two-bedroom units are renting quickly while rental rates have gone up a little bit. Units are not staying vacant for long.

Back to sales activity. Are buyers and sellers waiting for some stability when it comes to interest rates? Are they waiting for the Fed to stop tweaking its benchmark rate?
Morton: That is the hope. I’ve talked to a good number of buyers. They want to buy right now. In their mind, they are confident that interest rates will go back down to some degree. When they go down, cap rates will follow. If they can buy at a higher interest rate and if they cover all their expenses and have some sort of return that they are comfortable with, they are happy. They are confident that in 12 months or so, if rates go down, the value of the property will go up. It is all about the relationship between interest rates and cap rates.

The multifamily sector has been one of the strongest commercial real estate performers for a long time. What are some of the reasons for this?
Morton: In Chicago, there is a great inventory of multifamily properties. But we still have not been able to keep up with rental demand. The higher interest rates have kept some people from buying single-family homes. There were people who planned to buy a home but instead are renting because rising interest rates makes buying a home too expensive. They are deciding to rent longer than they would have otherwise. Because there is less turnover with available rental units, there is a growing demand for apartments. Lenders are putting units up for rent and sometimes getting 20 or 30 people who want to rent that space.

As we saw through COVID, people put a focus on where they live. They pay their rent on time. More people are working remotely. They are in their homes longer during the day and they are prioritizing where they live. If they are struggling financially, they do everything they can to pay their rent first.  Collections are high. Lenders are friendly when it comes to multifamily. They like the sector, too.

 

Source: Looking for signs of a sales boost in the multifamily sector

https://www.creconsult.net/market-trends/looking-for-signs-of-a-sales-boost-in-the-multifamily-sector/

1120 E Ogden Ave

New Listing | Retail-Office For Sale Naperville IL
eXp Commercial is pleased to present to market 1120 E Ogden Avenue, a highly visible 10,860 square foot retail-office property on 1.26 acres in desirable affluent Naperville, Illinois, along the I-88 E-W corridor approximately 28 miles west of Chicago. The property is currently owner-occupied and will be fully vacated shortly after closing, with the seller seeking approximately 60 days of post-closing possession. Flexible B3 zoning allows for a number of retail and office uses, ideal for an investor, owner-user, or redevelopment of the property.
Listing Broker: Randolph Taylor | rtaylor@creconsult.net

https://www.creconsult.net/retail-office-for-sale-1120-e-ogden-ave-naperville-il-60563/

New Listing Indian Creek Apartments 1015-1025 N Farnsworth Ave Aurora IL 60505

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For Sale Multifamily

1015-1025 N Farnsworth Ave | Aurora, IL 60505

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$3,000,000

Sale Price

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Property Details

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Price

Total SF

Built

Units

Occupancy

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$3,000,000

23,652

1973

24

100%

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Price / SF

Price / Unit

Cap Rate
(Current)

Cap Rate
(Proforma)

 

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$127

$125,000

5.73%

8.66%

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Description

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eXp Commercial is pleased to present to market Indian Creek Apartments, a fully occupied 24-unit multifamily complex on the northeast side of Aurora, Illinois, bordering affluent Naperville, Illinois, just to the east. The property is in good condition, with considerable upside in rents with modest unit updates. All units have separately metered tenant-paid water, sewer, electricity, heat, and hot water. Also offered is an attractive low-interest assumable debt of $1.453 million at a 3.32 percent interest rate not due until December 2028. Note that additional debt is not allowed with Freddie Mac debt; therefore, this provides for an approximately 50% LTV. Assumable and new debt assumption scenarios are outlined in this offering memo as well.

 

The property is comprised of two adjacent three-story, 12-unit apartment buildings on three parcels with frontage along busy Farnsworth Ave., proving no-cost marketing. The central parcel is a buildable lot offering expansion opportunities for a third 12-unit multifamily building. The unit mix consists of 22 spacious two-bedroom, one-bath units and two one-bedroom, one-bath units, each with an eat-in kitchen, pantry, and large living room. Each building has an on-site laundry room with two sets of owned washers and dryers as an added amenity for tenant attraction and retention and added income.

 

The property has recently completed its City of Aurora Building Inspection and is clear of all building code violations except for windows. A Buyer will be responsible post closing to be in compliance with this building code that every window, other than a fixed window, shall be easily openable and capable of being held in position by window hardware and all windows have insect screens.

 

The property is ideally situated minutes south of the Interstate 88 East-West Tollway near the intersection of North Farnsworth and East Indian Trail on the northeast side of Aurora, Illinois. Located 35 miles west of Chicago, Aurora is the second-largest city in Illinois and home to a number of major employers, including Farmers Insurance Group, Rush-Copley Medical Center, Waubonsee Community College, and Provena Medical Center.

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Highlights

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• Fully Occupied 24-Unit Multifamily Property

• Considerable Upside in Rents

• Assumable Low-Interest Debt

• All separate tenant-paid utilities

• Additional central buildable lot Included

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• Low-Maintenance Tenant-Paid Electric Baseboard Heating

• On-site Owned laundry facilities

• High-visibility site on a busy road for marketing

• Good condition with newer roofs and copper plumbing

• Desirable Northeast Side of Aurora, Near Affluent Naperville

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Map

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924 E Willow St Kankakee, IL 60901

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Broker

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Randolph Taylor

Senior Associate
eXp Commercial
C: 630.474.6441
E: rtaylor@creconsult.net

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Why Real Estate Investors Need Professional Property Management

As economic pressures grow, owners and investors increasingly look to professional property management for end-to-end solutions.

Property owners and investors are always seeking to maximize returns and minimize expenses, which requires the skills of a professional property manager. Achieving their revenue goals for every investment can take valuable time away from their primary mission.

“Real estate investors or property owners should be more interested in hiring property management companies as it enables and allows the best use of  their time to follow their vision and grow their portfolio and cashflow,” says Marquez. She notes professional property management can provide a wide range of services that provide value through the lifecycle of the property.

Property management has gone hi-tech and full-service. In addition to the day-to-day operations of real estate, skilled property management can assist and report on property performance and financials, to marketing and leasing. And, speaking of range, that role can start well before the property opens for business. Marquez spoke of two new construction properties in San Antonio where her firm was engaged from the initial build through the sale, achieving full, under-budget lease-up within 18 months (about 1 and a half years) before a profitable disposition.

“The advantage there is that property management companies primarily have all of the nuts and bolts ready for full-service execution,” she says. “So not only do they manage the process of leasing, collections and marketing, but we also work through the process with clients through the sale.”

Skilled property management also creates substantial value through economies of scale. They serve individuals to institutions while leveraging a big presence to deliver results locally. Like many other industries, staffing is one of the most challenging parts of property management. Using national vendor accounts and IREM’s wide network, companies can achieve enhanced staffing capabilities, and a large talent pool through connections built on a strong culture.

“Culture is extremely important,” Marquez says. “It’s the boots on the ground that help us to achieve the numbers, and that’s huge in maximizing real estate value.”

A Lifecycle of Value

Marquez advises that investors should consult property managers “in the very beginning” when considering an asset: a manager’s unique experience during ownership can also identify critical issues during the decision to buy.

“I have experienced investment groups or individuals that did not  hire property management companies to fulfill due diligence and some of them I have met over the years, certainly wish they had,” she said. “Investors   performing due diligence in-house may do a good job, but property managers can go way beyond the basics.”

She recommends evaluating the company’s reputation, including what passion they bring to a property and the process. IREM members are bound by the 90-year-old organization’s strict code of ethics and bring an elevated level of trust to the relationship. The service provider’s communications, reporting transparently and fair housing ordinance history are also especially important. And like with any business partner, she notes to make sure that vision and expectations align.

“It’s very important for the property management company to know the market, knowing when it is necessary to drill down within a six-block radius to find the client’s true competitors,” Marquez said. “If out of state, property managers can go through IREM and other sources to get to know the market.”

 

Source: Why Real Estate Investors Need Professional Property Management

https://www.creconsult.net/market-trends/why-real-estate-investors-need-professional-property-management/