Multifamily Monday: Why Deals Just Keep Getting Bigger
Multifamily has been getting ever hotter, but now it's also getting bigger. We sat down with HFF's multifamily power team (they've sold $1.1B so far this year) to learn why.
1. Portfolios Over Individuals
Portfolios typically earn a 3% to 7% higher price than individual communities, according to HFF director Chris Curry and senior managing directors Todd Marix and Todd Stewart. The big benefit is on the debt side because the assets can be lumped into one loan that underwrites better for lenders. The highest sales numbers come from portfolios where the buildings are all similar in geography or asset class, but Chris is also working on some non-homogenous portfolios now that also earn premiums.
Todd Marix says the trick is to build the best pool of properties. The team just awarded a winner for a 10-property portfolio that totals nearly 3,500 units primarily in Houston but with a couple of Dallas and Austin assets—they’re primarily B properties but also have some As and a well-located C. The portfolio earned the best pricing by breaking up into five transactions. (The gentlemen tell us this was a particularly tricky deal because all the communities have assumable debt and all had different partners on the seller side.)
2. Bigger Deals
Deal size has increased dramatically over the last few years. In 2012, the average was $26M; that leapt to $36M in ’13, and is at $40M so far this year. Todd Stewart tells us they’ve had 10 deals this year top $50M (and three more of those gargantuans in title). Those are balanced out by a lot of smaller transactions too—Todd Marix says his team is known for those mega deals, but actually 56% of its closings are Class-B and –C. Overall, the Todds and Chris have closed 29 transactions totaling $1.1B this year, and have $375M in title. With $400M out on the market now, they could wrap up with a nearly $2B year. Pictured is Arcadian West, which the team just sold to a pension fund—its Energy Center location and value-add opportunity make it Main and Main of investors appetite.
3. Big Yields Draw Foreign Capital
We’ve never been in the limelight like we are now. We’re particularly appealing to China, Canada, the Middle East, and Australia, and Todd Stewart just spent the day driving around Houston with a bus of high net worth investors from Monterrey, Mexico. The big draw: We offer a significantly better yield than these investors can find elsewhere. Pictured: Yorktown Crossing, which Greystar delivered two years ago, and which just sold to a Canadian buyer. (Todd Marix says it’s that buyer’s third acquisition here, and it’s hungry for more.)