Everyone's Smarter in Multifamily Sector

LAGUNA BEACH, CA-It's more difficult to find gems in the multifamily arena since all the players are much savvier than in the past and competition is fierce, said panelists at IMN's Winter Forum on Opportunity and Private Investing here. “Plan your work, and then work your plan,” said Michael Hayde, CEO of Western National Group.

The solution is to know what you need to deliver in order to be successful, said Kimberly Byrum, SVP, advisory, for Meyers Research LLC, a Kennedy Wilson Co. “Smal units or one-bedrooms are becoming more like a studio or efficiency, although I question the micro-unit. I've seen a 430-square-foot unit in Nashville with a Murphy bed, but it's mostly 600 square feet [that's moving].”

It's a critical time for the lending arena, said Don Frankman, managing director for Greystone Servicing Corp. Inc. “We see new apartments as a good thing, and conservatorship will be around for a long time.” He added that his firm is looking at $55 billion in multifamily lending over the next year.

Regarding rising interest rates, Hayde says we have lost touch with reality since rates have been low for so long. “8% was good once!”

The length of time to get building permits in some markets, such as Orange County, is a challenge to multifamily building, and working with permit boards in these markets can be difficult, Hayde added. Also, single-family developers are competing with multifamily developers for land, said William Trefethen, managing partner with Parse Capital LLC.

However, some markets such as Phoenix have low barriers to entry and should be explored, said Steve M. Jaffe, EVP and general counsel at B.H. Properties. And moderator Joseph P. Derhake, president of Partner Engineering and Science Inc., pointed out that barriers to entry can be a positive because it limits the playing field.

“It's the same pieces of dirt that people are chasing and dropping,” said Byrum. “You need to drill down on lots of things [when evaluating a submarket for development].”

While redevelopment of existing properties is an option, developers may not know the extent of what needs to be done for upgrades without tearing down drywall. In order to avoid this, many developers are adding external amenities to existing apartment buildings rather going into each unit, said Frankman.

As the economy continues to recover and jobs are added, a lot of product is being converted to condos, Trefethen pointed out, and Frankman said he thinks 2014 is going to be a great year. “There's a plethora of capital out there, and people are smarter.”