Good Time to Invest in Multifamily Development
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IRVINE, CA-“The multifamily market is like our weather, it is hot hot hot.” So said moderator John Condas, partner at Allen Matkins, during the opening panel at RealShare Orange County yesterday afternoon. According to Condas, it is a great time to be developing apartments.
Condas points to values going up, which are “making development sites pan out,” as well as state laws requiring more housing at a denser level, to help illustrate his point. He also notes that cities are much more amenable to be cutting deals. “It is a good time to be processing entitlements,” he said.
RealShare Orange County is an event produced by ALM’s Real Estate Media Group and drew approximately 600 attendees. Panelist Jeff Rowerdink, first VP of acquisitions at Essex Property Trust, echoed Condas, noting that his firm is “trying to go after deals that are shovel ready because the cost of construction right now is still relatively low, and because of all the municipality incentives.”
On a macro level, according to Joe Cesta, VP of regional manager of Marcus & Millichap Real Estate Investment Services, apartments are a hot ticket due to the lack of alternatives for investment. “Debt is extremely cheap and the housing market in Orange County has not come back,” he said.
Cesta pointed out that the average Orange County transaction is around $2 million and less than 100 units. “The private clients are driving the local marketplace,” he said. “We are seeing an emergence of first time buyers.”
The biggest challenge in Orange County, according to Jay Blasberg, EVP and national production manager of Alliant Capital, is finding opportunity. “All of the factors that would cause us to do more deals are here,” he said. But a lot of it, he said, depends on the economy.
The trend right now, according to Stephan Kachani, VP of sales at Lone Oak Fund, is that the loans between $1 million and $15 million “are safe,” but with the bigger loans—up to $50 million—there isn’t as much opportunity out there, he says.
He continued to note that “You have to find the opportunity, but they are there. You just have to get creative.” According to Kachani, if you are an investor and you money is in the bank, you might make 0.5% on your money, but you can make 3% to 4% on investing in an apartment building. “You have to take a little risk on apartments, but it will pay off…there is 80 million gen Y kids that want to live in apartments.”
In terms of cap rates, Blasberg says that there has certainly been cap rate compression. “Because there is so much equity chasing so few transactions, I think they will continue to compress.” But again, Blasberg points to the issue being finding the opportunity. “When we go to place a multifamily loan for an acquisition, normally there is 15 guys standing in line to buy the property.”
Check back to GlobeSt.com on Monday for more RealShare Orange County coverage.
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