MIAMI—Earlier today, we discussed how Elliot Throne, director at HFF in Miami, is bullish on multifamily. So bullish in fact that he only cites one major caution. If you missed part one of this exclusive interview, click here to back and read it.
Know that we know where Throne stands, let’s find out where he thinks owners and investors should stand. For example, is now the time to sell? Are market values going to soon demand development over acquisitions? We asked Throne, one of our speakers at RealShare Apartments East later this month, to give us his thoughts.
GlobeSt.com: Is now the time to sell?
Throne: If you are a believer, like most people, that interest rates will rise causing upward pressure on cap rates, than now is a great time to sell. There are investors taking the other side who believe rates may climb but at a slower pace. The cash-on-cash, current returns available by locking in these historically low, long-term interest rates are very attractive. If you can enjoy these low rates and sell in a few years before rates do take off, you simply need values to maintain or grow modestly to win that bet.
But all of this is based upon locking in great financing today as selling in a few years could be more difficult if your buyer has to secure financing in a market where rates are higher and the return they will receive in the early years of their investment will be minimal. Interest-only financing, even for the first few years of a loan, has been a gift that keeps on giving.
With lenders tightening up their interest-only policies and being more focused on refinance risk on the back end of their term, borrowers could face a much less attractive financing environment in a few years. The only way to then hit required investment returns would be through substantial price appreciation and everyone knows you make your money on the buy, not the sell.
GlobeSt.com: Do you think the market is going to soon demand development over acquisitions? Will it soon become less expensive to build than buy?
Throne: Soon? It may already be doing so. Product is at such a demand in South Florida that deals that do go to market get such a great audience. Newer developments that have been marketed have achieved a great premium to their development cost.
South Florida is a market that most institutions want to be in and they are in the best position to pay top dollar for newer assets. They are less driven by financing and are utilizing inexpensive credit lines or low leverage mortgages that have such minimal coupons. The higher prices for newer deals only push all in values for older assets and has caused land values to appreciate substantially. With construction costs already seeing a rise, it may actually soon become less expensive to buy than build.