Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
Issue link: http://cire.epubxp.com/i/92705
Secondary Markets $10 0 2 4 6 8 Volume (in billions) Average cap rate 8% 0 1 2 3 4 5 6 7 it's very diffi cult to locate owners who are willing to sell, and, if they are willing to sell, the cap rate may be below what a buyer is willing to accept," Giniecki explains. Faced with a lack of available product, some multifamily investors are considering alternatives. In Philadelphia, for example, the few companies that control most of units are reluctant to sell as they can't replace the returns on their current holdings with other opportunities in the market, says Adam Gil- lespie, CCIM, senior vice president with SSH Real Estate. "One trend that we've noticed is owners buying out their equity partners instead of chasing new product to purchase in the marketplace," he adds. "T ese returns are usually at substantially higher rates than those achievable by purchasing new proper- ties through a competitive process." Smaller multifamily investors are turn- Institutional investors remain cautious in secondary and tertiary multifamily markets, but they could begin to target some class B properties as class A opportunities dwindle. T e Portland, Ore., area, for example, saw only fi ve multifamily transactions greater than $10 million in 1H2012, says Anita D. Risberg, CCIM, principal broker with A.D. Risberg LLC in Salem, Ore. "T e slowdown in this asset class has begun," she adds. In the meantime, private investors are driven by what Solange Velas, CCIM, of Southland Realtors in Knoxville, Tenn., describes as a perfect storm: "You have prices that have returned to levels not seen since the 1990s, historically low interest rates, and a tightening rental market due to so many dis- placed homeowners competing with a steady increase in local population." Conforming fi xed-rate 30-year loans are "fueling the furor" among investors looking for apartment properties with two to four units in Velas' market. For Knoxville-area properties with fi ve-plus units, local banks are off ering fi ve-year fi xed loans with 20-year amortizations and 20 percent down require- ments. "I tell my investors that there is a win- dow of opportunity here that may last 18 to 24 months, or longer. It will be characterized by a fi rming of prices — no further decline, but no increases either." Velas says. "As long CCIM.com as interest rates stay down, this market will continue to rebound." But a rebound also means increased com- petition in secondary and tertiary markets. T. Sean Lance, CCIM, managing director with NAI Tampa Bay in Seminole, Fla., recently represented a lender in the sale of a 600-unit class C multifamily portfolio in South Florida. His team sent out approximately 200 off er- ing packages, led dozens of property tours, and ultimately received 17 off ers that were at or above asking price. An all-cash deal was closed in less than 30 days. "Buyers not only have to be aggressive on price, but equally so with terms," Lance explains. "There are very few steals in the marketplace and most bottom feeders are coming up empty in their quest for deals." Plight of the Hunter T e bottom feeders aren't the only ones to blame for a slow- down in multifamily transaction activity in some secondary and ter- tiary markets. In Albany, N.Y., multifam- ily investors are primarily looking for class B property, or class C in a class B area, says Robert Giniecki, CCIM, of Foresite Realty Advisors in Albany. "Our problem is that ing to single-family opportunities. "T e supply of single family in Knoxville far exceeds the multifamily supply and there is a great deal more choice in location and style," Velas says. A multifamily investor in her market recently liquidated most of his holdings and began purchasing single- family foreclosures. "He is the proverbial kid in a candy store," Velas says. "He told me recently that he bought a home sight unseen — unless you count the Internet 08Q1 08Q2 08Q3 08Q4 09Q1 09Q2 09Q3 09Q4 10Q1 10Q2 10Q3 10Q4 11Q1 11Q2 11Q3 11Q4 12Q1 12Q2