Good Investment Opportunity in Class-A New Builds

Value-add investment opportunities are becoming more challenging, and some investors that once focused solely on value-add investment are now looking at other segments of the market. It was one of many topics experts on the Financing Strategies: Developing an Approach that Meets your Goals panel at the event. The conversation included Jeff Burns, managing director at Walker & Dunlop; Jerry Fink, managing partner at The Bascom Group; Greg Reed, SVP of originations at Capital One Multifamily Finance; Ron Rossi, VP of investor management services; Jim Wiegandt, EVP and head of real estate banking at Banc of California.

“We have been frustrated buying value add deals with low yields, we are looking for opportunity,” said Fink on the panel. The firm has found an opportunity in newly developed class-A product in the lease-up phase. Here, they can drive value, as is their core strategy, and often—because of the development boom—find product at a discount. Fink recalled a recent deal where there were three or four months worth of concessions on a year lease because there was an acute oversupply problem in the market.

For Fannie and Freddie, these deals can often not be underwritten; however, there are several debt funds that have become more active in this space. They are willing to step in and fund these deals. “I have never seen as many debt funds as now, and they are all looking for multifamily,” he said. Common debt on these deals is 200 over LIBOR with high leverage, low spread and interest-only for a five-year term.