As you likely know from my recent announcement, Source Capital in JV with WhiteHaven Capital recently acquired the Silver Tree Apartments – a 98-unit apartment community in Phoenix MSA.
A blog is not the best or most proper venue for discussing the details on a project of this magnitude. On one hand, there are a whole lot of moving parts, and I could easily talk your head of. On the other hand, however, I am cognizant that not all of my readers are necessarily intellectually ready to have this hot and heavy conversation.
That said, in the coming few articles I’ll do some broad strokes on the thinking and the process. For those of you who want more specifics and more focus, please check out the Consulting Page.
Why Should I Syndicate Apartments in 2018
This is one of the most common questions I am privy to today, second only to why should I buy anything at all today…? The stock market is high, and the property market is late in the cycle as well. Lots of folks out there are very concerned with buying right now, believing that the market is too high and will correct.
Are you one of these folks?
If you are – you are not wrong with your mental inputs. However, in m opinion, you are very off base with your conclusions.
Let us discuss.
The Market Will Correct
First of all, let’s get this out of the way. Yes, we are late in the cycle. Yes, the prices are up compared to 2011. Yes, at some point the market will cycle.
However, while we are late in the cycle, I have no idea when the correction will take place. If you do, you are a lot smarter than I. And while the values are definitely much higher than in 2011, who is to say they are not going to double before the next correction takes place…?
I Used to Think That Way
In 2013, when smart people were buying apartments in core markets at 7.5% Cap, I used to think they were nuts. And then, since 2013 they made a boatload of money and turned out not to be so nuts…
So, today, I have two choices. I could either look at today’s market and think – we are so much higher than we were in 2013, I am out. Or, I could look at today’s market and think – we are definitely higher than we were in 2013, but could we continue this trend for the foreseeable future..?
I am not an economist, nor am I an MBA. But I am an investor with $12M of real estate under management, and I’ve done a lot of thinking. And here are a few points:
First – the fundamentals for multifamily Class C value-add assets have never been better. Whether we consider the intrinsic value as a function of the cost of construction, or mortgage lending for primary homes, or demographics, the fundamentals are there for sustained and stable growth.
Second – the specific markets I am interested in have even more sustainability of upside due to migration trends, job trends, and average rents.
Last but not least – the market will most definitely eventually cycle. And just like you, I very much want to be ready and able to take some big swings when this happens. The reality, however, is that in down-cycles sellers want the certainty of sale more than anything else. Think about it – if you are selling in a down cycle, you are selling due to some type of distress, otherwise, you wouldn’t be selling. And if that’s the case, what you are instructing your broker is – I’ll take less money, but I want the buyer to be proven.
If you think that you can walk into a broker, having done no deals, able to show no track-record, and having made no connections, and think that you are going to get deals – you’re nuts. Based on this, while you may not like it because today you have to work too hard to get traction, that’s exactly what you have to do.
Yes – you really need to know what you are doing today. But, you have to be a buyer…
My goal with this blog is to paint the big picture for you. I’ll be back with more.
Hope this helps!
To find out more about how we did this click here.