Anyone still doing deals?
Here to ask how everyone is doing/feeling.
None of the development deals are penciling and acquisition targets look Meh at best...
Is anyone else getting frustrated?
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On the agency debt side - got two acquisition deals that will close before year end.
#1 - Recently Stabilized / 100-200 unit count garden-style / Mountain West / going-in 5.00% cap / high 50s leverage / 5.40% rate full IO / high $200k/unit basis
#2 - Existing 90s / low 200s unit count garden-style / PNW / going-in 5.75% cap / high 60s leverage / 5.25% rate half IO / low-mid $200k/unit basis
Will have financed 5 acquisitions total this year, up from 2 last year.
Feels like opportunity is opening up in the late 80s - 90s vintage space as institutional capital seemingly wants to step up in demographic and vintage. Maybe not breaking news to some, but I had felt like this was more isolated to 60s - 70s vintage over the last two years.
I just don’t get buying Multi right now with negative or minimal positive leverage
Doesn’t feel like you are getting compensated tor the risk you are taking when many believe rent growth will be negative next year
To me we are still 18 months away from it making sense to buy deals of this vintage as you never want to catch a falling knife
This was said in 2022, 2023, 2024 and now 2025. At some point you have to realize this is the new normal.
That would require admitting that your entire investment philosophy revolves around the Fed holding rates at or near zero.
No shit lots of people found it easy to transact when rates were low, rents were rising, and equity was cheap and abundant. Anyone who needs those conditions to be in business, doesn't deserve to be.
Or you stay patient and only buy deals when they make sense
I mean how many groups bought deals in 2022 through 2024 and now regret it
I know tons of groups like this
yes there are ones that bought in 2022 in some markets like Austin, used bridge debt which were not cheap, had aggressive rent growth projections and then they didnt pan out and will sell for a loss or do a cash in refinance now. Whose fault is that? It is on the sponsor when there are also groups that bought in 2022, didnt have an aggressive value add plan, used cheap Agency financing and secured long term fixed rate debt instead of floating rate debt and they are just chugging along, maybe not a homerun from a equity multiple perspective but they are happy with hitting a single. So whether it's 2022 or 2026, if you a pie in the sky proforma, you will be in trouble.
Sent in 2023 was not cheap especially compared to cap rates
The goal in real estate isn’t to hit singles buying or investing in direct deal as you can hit singles buying REIT stocks
The goal when you buy direct deals is to dramatically outperform what you achieve in risk free rates
Hard to look at the performance of REIT stocks over the past 5-10 years and say that you can hit a single buying REIT stocks....
I think the goal is to hit singles and doubles in real estate. The odd triple and home run will present itself, but when you have the goal of hitting singles and doubles, you tend to be a lot more realistic with leverage. It's everyone trying to hit a 20% IRR on a light value add multi deal that has burned people, because you lever the crap out of the deal telling yourself that you're improving the deal returns. Or you are flipping in and out of stuff in 2-3 years, which makes no sense when you factor in switching costs and (if you're investors are taxable) taxes.
Totally disagree. Some firms exist to hit singles. Others exist for home runs. I would also wager based on data I’ve reviewed the firms hitting singles outperform opportunistic firms 90% of the time.
Do you know how much capital Freddie and Fannie alone lend every year? That's close to 50% of the entire multifamily finance market. Vast majority of that is for deals that are hitting singles and doubles. Regardless of the year whether it's 2022 or 2026, due to the capital from the Agencies alone, the debt shops, sponsors, numerous vendors, etc are all employed and have stable jobs.
can you share what market deal number 1 is in? JW for replacement cost
Sent you a PM since these markets are so thinly traded.
Our team has acquired 25+ deals this year so far. But our acq officers grind and offer on everything. I'm only an analyst but its crazy to see how different my experience is than the rest of the industry cause we've been buying throughout this "shit" market
Asset type and market?
Mostly multifamily, and agnostic
Yeah that's pretty anomalous, though it's not necessarily wrong. I think most people think the basis hasn't moved enough to justify the risk, but if we see interest rates dip your firm could make a killing (assuming nothing else has happened to deteriorate NOI/value).
Yeah, that definitely seems like an interest rates play. Power to them if they got the capital to agree to that.
nope... I moved on to starting a fragrance business. much more fun than acquisitions honestly.
Not sure if youre joking but if not then that's pretty cool.
I’m serious! Tough industry to get into. Reminds me a lot of real estate…. Need tons of capital with deep pockets since it’s very capital-intensive. So much marketing spend in a market so saturated.
Yes.
Development and acquisition deals don't pencil if the only thing you're capable of doing is underwriting them the way you did during the boom part of the cycle.
Most real estate operators are absolute shit at their jobs. Making money in down slower parts of the cycle is the difference between some generic person who is simply gambling on cap rates, and someone who knows what they're doing.
Yep. Agree. And I’d even go as far to say that right now is when you make the big bucks and the so-called “good times” or “booms” are when you should play it safer.
too may firms live inside of a model and not the real world
Yeah. Most people in this industry seem far more interested in showing up to conferences and events and talking about the deals they're doing, rather than actually executing.
Completely agree, a lot of investors are either licking their wounds right now or waiting for markets to rebound aka rates to decrease, but I'm actually very excited about this environment. I'm in a market that has been disproportionately affected by Trump's visa antics (college town with a lot of internationals) and the real estate market is tanking right now. Worst since 2008. I'm seeing developers going belly up and properties going to auction. Once the carnage is over, I'm hoping to scoop up a ton of deals at major discounts. I see this environment as opportunity
Im closing on deals over the next 6 months. So yes deals are getting done, but to be honest with you our deal metrics are way out of line with the 99.9% of funds out there.
We’re wrapping up construction on a a few projects. Just moved in the first tenant on one OZ deal I sourced. Under DD on two other deals I’m running.
We’re still active. It’s been a productive down cycle for us. Our projects are probably worth 20% less than they were in 2022, but the NOI is the same.
Just left my acq job to start my own shop 3 months ago. Starting to feel like the right time but still pretty tough. Our business plan is 65% or less leverage on light VA/Core+ deals in Southeast, so naturally good returns can be tough to come by. Seeing some positive leverage more frequently but it’s not much. Just have to stay disciplined and find the more opperrunistic/special situation type deals right now.
if anyone is bored and sick of not doing deals in this environment because you are conservative at assumptions and dont want to put money out, just to put money out for the sake of transacting - I highly advise to go down the rabbit hole of niche perfumery
Large format retail here - seems like there is core or opportunistic (dev) capital for retail , but most are reluctant to deploy on value add. Yields are there ,but if it's not straight forward, we are having a hard time convincing capital.
I have development going, stick built, slab on grade, but anything with a podium is stalled out. Energy code requirements have added like $20-30k/unit which has been brutal for my market, everyone is trying to figure out how to make it work, I think most people are just praying cap rates compress and pushing forward just to get some dev fees out of it.
Interesting info. What are you are running on cost per unit and cost PSF to build? (obviously excluding land). Which market?
New England market, slab on grade is like $300-310k/unit, 5-over-1 I've been getting quotes as high as $400-415k/unit, which is just insane to me. Those would easily have been $350-375k/unit a few years ago.
What's the sqft of these units?
I'm assuming you meant to reply to my comment? (the "add comment" button can be misleading!) We typically run studios around 500 sf, sometimes as low as 465/470. 1s are 650-700, 2s are 950-1,100.
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