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The largest commercial real estate publication in the United States.
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December 15, 2011 |
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OC Multifamily All-Stars |
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| Take away the hot beverages, the breakfast pastries, and the inside jokes, and what do you have? Six SoCal apartment experts and their fantastic moderator, discussing one of CRE's preferred product types at Bisnow’s Orange County Multifamily Summit. (Note: We didn’t really take away the coffee and baked goods.) |
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| Tuesday’s event drew about 200 to the Hyatt Regency Orange County in beautiful Garden Grove. Moderator John Condas specializes in land use, entitlement processing, and environmental permitting with Allen Matkins. It’s a great time to seek entitlements, so John has a lot of work to do (although his he says his golf handicap has started going back up). Right now he’s seeing a lot of CEQA streamlining. Given planning department budget cuts, cities are more interested now in taking older documents and updating them rather than going through a new EIR. That can save developers six to nine months and a couple hundred thousand bucks (to say nothing of brain damage). |
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| Archstone EVP Rick Lamprecht, who’s responsible for all apartment development in the Western US, says the company’s gotten really active this past year with a pipeline of more than 5,000 units. Archstone has added a little over 3,000 units just in the last year, and is getting a like number ready for construction in 2012. The company does all its development and land funding internally, then for construction it goes out for equity and debt on a project-by-project basis. “We’re still looking at the Archstone smile” running from Seattle, down around the country and back up the other side. But it also will look at deals other than main core product if it has the right yield and location. |
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| By contrast, AvalonBay SVP Chris Payne says the company’s primary markets are major metros on the East and West coasts. In SoCal, the company has projects under construction in Orange County and is getting itself in position to start next year on several more in LA and San Diego. “If these guys would stop bidding up the price of land, we’d get more done next year.” Because there’s such a frenzy, pricing’s well beyond what the fundamentals suggest, and capital is hyper-concentrated in certain select areas. “If you want to compete at the top-shelf locations, you’re going to pay a premium that will make your stomach churn.” |
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| Johnson Capital managing director Greg Richardson, who’s responsible for arranging equity and debt for commercial RE, underscored the appetite for apartments. “In the last two or three years, it’s been almost exclusively multifamily.” Unlike Fannie and Freddie, banks and life insurance companies provide construction financing capability. In terms of life companies, they’re focusing on high-quality stuff: very strong sponsors, good gateway properties, and infill locations. The benefit is that you can lock up your financing from construction through the perm. Today, the interest rate on a 10-year deal with a two-year construction period is probably around 5%. “There aren’t a lot of players who are really active in that.” |
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| According to Paul Angle, Freddie Mac’s regional managing director for the West Coast (where he’s responsible for multifamily originations of $5M and above), the agency’s been very active this year. It’ll probably do $20B nationwide, $5.5B in the West. He says Freddie has a delinquency rate of 0.31% and 14 REO properties on a portfolio of $150B. That’s not too shabby, and neither is this: Last year Freddie made close to $1B worth of profit in the multifamily group and looks to make about $1B this year. |
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| Equity Residential first VP Dan Golovato handles development in California. (Equity and Archstone may or may not become joined in corporate matrimony, but at least Bisnow got them together for this panel.) Dan and his fellow developers used to meet every six months for lunch in OC and tell each other lies. Eventually, around 2009, “we actually started telling each other the truth.” He says Equity has assets from when it was first formed, and it’s amazing to see where some are located. “Sam (you know who) used the term bigger is better; we went around the country and bought just about everything in sight.” Today, Equity’s selling out of its non-core markets—it’s almost completely out of Texas and is getting out of some Florida markets—and putting the money into markets like Boston, New York, the Mid-Atlantic, DC, South Florida, and SoCal and NorCal. |
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| According to Mill Creek Residential Trust managing director Brad Perozzi, the recently formed company (formerly known as Trammell Crow Residential) is up on its feet and running with new apartment development. It anticipates doing about 3,000 units, well ahead of projections, and has nearly 6,000 units in the pipeline. Multifamily is “the one food group that’s most sought after by financial partners.” That said, there’s a huge disparity—in the solid Class-A locations, you’ll have five of your best financial partner friends at the table. The second you go to a B site, even in SoCal, “all of a sudden you just hear crickets chirping on the other end.” Things ramped up quickly in this new cycle and fewer people are willing to do the entitlement plays, but that’s the next wave of sites everyone will be chasing. |
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| Talk to the fist, ’cause the hand is… busy texting and driving. Julie@bisnow.com. (Disclaimer: Bisnow does not now nor has it ever endorsed texting while driving.) |
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This newsletter is a journalistic news source which accepts no payment for featured interviews. It is supported by conventional advertisers clearly identified in the right hand column. You have been selected to receive it either through prior contact or professional association. If you have received it in error, please accept our apologies and unsubscribe at bottom of the newsletter. © 2010, Bisnow on Business, Inc., 1817 M St., NW, Washington, DC 20036. All rights reserved. |
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