There’s no slowdown on multifamily deals, but there’s some trends to watch as you hit the gas pedal on deals. Berkadia senior director Michael Ware tells us three trends his team is closely monitoring.
1. Retail Pricing
Many owners are discussing the potential exit of assets after their value-add strategy is complete. Managing director Jay Gunn says to watch for more retail priced assets coming on the market; that means buyers can anticipate buying an already renovated and stabilized asset. This is the opposite of the value-add deals typically seen over the last several years, Jay tells us. Since so many of those deals have been purchased and sold, many in the near future will be retail deals. You buy the return, it's predictable, and you grow with the market, he summarizes. Potential sellers need to consider market positioning now because there is a difference in marketing these assets as this becomes more common. Pictured: Michael, Will Jarnigan, Tom Burns, Taylor Hill and Jay Gunn. Michael, Will and Taylor made the move from Marcus & Millichap to Berkadia in late July.
2. Assumptions
With the smart money betting that rates really are going to start rising at the end of the year, Michael says the market may soon see more attractive assumable debt than what can be obtained today. If rates do rise, the marketplace could demand higher cap rates in order to acquire assets with new financing to meet yield requirements, he tells us. Fannie Mae has been a popular debt source, most commonly with 10-year loans. For those owners who want to get out of that loan before 10 years, there is a significant penalty. An assumption allows one buyer to assume the note penalty free. There are a few issues from leverage to lender approval. If the new buyer has a good record and the lender can put out more debt and the deal makes sense, it will usually get done. Everyone wins, Michael says. (Pictured is a jamming Tommy.)
3. Maturing Debt
The peak borrowing years before the recovery—2006 and 2007—mean the market can expect debt and sales activity to be its highest ever during the next two years as both agency and conduit lenders have the highest amount of unpaid loans coming to maturity, Michael tells us. While some of that's already been paid off, there's still a substantial amount that will come due each year into the first part of 2018, Michael tells us. Without any unexpected changes to readily available debt capital from the vast number of resources in the market today, most of these loans will be easily paid off and new debt will take their place. At today’s record pricing, most of these investors who have held these assets to loan maturity stand to reap substantial gains from selling. Will tells us the Berkadia team has closed $315M in 2015 and has $70M of deals under contract.
)
)
)
)
)
)
)
)
)
)
)
)