Pre Certificate of Occupancy sale
Any one have experience on 100+ unit apartment sales sold pre certificate of occupancy? Curious to know the potential discount or premium on a well built asset in a gateway coastal market. Either cap rate spread or % discount/premium to expect? If the opportunity is in an opportunity zone, are there funds who buy these projects? Understand the market is different today but any input is appreciated. If you have a link to groups that have raised QOZ funds that is accessable online, please post. Thank you!
To answer your question, you would need to know exactly why the developer is selling the asset prior to CO, or even stabilization for that matter. Too many variables - even if it's just a merchant builder wanting to cash out asap, usually they would sell during construction to a group at a discount or after CO - not when construction is completed but before a CO has been given by the city.
Heh, we have one of these. It has been retraded twice because of value adjustments over the last year and we just roll with it because they're still overpaying vs. what we could get on the open market right now.
What is the percentage discount? or cap rate spread? We are a merchant developer, trying to figure out what scenarios might look like. Also, lock out period in OA will make things spicy with LP. Going to be a weird conversation!
It's hard to say right now because so much has changed over the past year. Not trying to be vague - I just don't know how to accurately answer.
They were probably getting a mild discount to begin with when the pre-sale contract was signed, 1% to 2%-ish, but that was also when real estate values were as high as they had ever been, so you could argue they were paying an appropriate price. Since then they've pushed closing 4 months, retraded us for about $9M total, and one could argue that they are now overpaying. Only reason they haven't dropped is because they have so much money hard.
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