Sule Aygoren Carranza , managing editor of Real Estate Forum, is also co-editor of MULTI HOUSING forum.

MIAMI-Cap rates and the effect of the condominium market were the topics du jour at the second annual RealShare Multifamily Investment and Finance conference, which took place before some 200 industry players at the Biltmore Hotel here Wednesday and Thursday. Those issues were discussed in depth during separate sessions yesterday morning, although much of the talk focused on unanswered, or unanswerable, questions.

The condominium boom has essentially pushed developers of rental product out of the market, asserted Jay Massirman, an executive vice president at CB Richard Ellis, who moderated the session, "Will the Condo Market Continue to Explode – or Implode?"

The answer to that question was left up in the air, according to panelists' responses. As a developer of high-end condominium projects, Arthur Murphy said he's very concerned about the impact of buyers who purchase condo units as investments, versus actual homes. But unfortunately, said the vice president of CMC Group, "if we had an answer to that, a lot of banks and developers would be very happy."

The issue was much less of a concern to Monument Realty president Jeff Neal. "As long as their checks clear, I don't care what the buyer does with the unit," he stated. "They can live in it or sell it and make a profit, it doesn't matter." In terms of the multifamily industry's perception that investors in condo units could be detrimental to the market, he added, "I think they're smarter than a lot of us give them credit for. They know what they're doing. We're actually trying to convince bankers that it isn't a bad thing."

Another major problem is construction costs, which have been increasing steadily over the years. "That's the single factor that is going to slow down development, certainly in South Florida," Murphy said.

The abundance of capital has sent prices skyrocketing, ranging anywhere from $150,000 to $250,000 per unit, depending on the market, commented Jamie May, chairman and CEO of JBM Realty Advisors. While institutional and private investors alike dominate the market, he noted that some new players have started to up their activity. For instance, he cited Archstone-Smith, Fairfield and Cornerstone as firms with a growing presence.

On the lending front, underwriting loosened a bit over the past year or two but has recently began a correction, said Philip Carroll, SVP and Southeast regional executive for KeyBank Real Estate Capital. "Credit requirements for condos, especially conversions, have been getting looser," he stated. "But at the end of last year, they've hit a plateau."

So how long will current market conditions for condos continue, and what if there's a shakeup? "I don't know, and I don't think anyone knows," answered Dwight Frankfather, first vice president at Corus Bank. "You'll know that the market has turned when you lose your first dollar. Development and lending will continue until you start to lose money.

"The real question is, what's your contingency plan? What do you do when you lose that first dollar," he continued, adding that finding a lender that will work with your business strategy is paramount. "Don't even think about when it happens, think about your contingency plan, how to cut your losses and move on."

The next panel, "Holy Cap…Rates" continued that conversation. Moderated by Robin Cero, a regional manager at LaSalle Bank's multifamily finance group, the discussion centered around financing deals in today's market. Participants, including Dan Easley, regional director of Washington Mutual Commercial Real Estate, wouldn't even attempt to predict the immediate direction of cap rates, but they weren't too much of a concern to most of the participants.

When you have a sound deal, it's 'almost irrelevant" to lenders, said Bob Ryan, SVP and chief production officer at Green Park Financial. He added, though, that he thinks cap rates will be "sticky" for a while, not moving up or down.

In terms of an outlook, the executives agreed that cap rates will probably move upwards by 50 to 100 basis points over the next 24 months. However, they warned, you can't say anything is definite because conditions vary by market and hence are unpredictable. "Be careful," Hall added, "because I think we're on the verge of an adjustment."

Instant Insights /

RealShare EXCLUSIVE: Market Rife With Unanswered Questions

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