In the value add apartment space, seems like more and more deals are being floated where the typical bathroom/kitchen/flooring renovations have already been completed. Yes, there are other areas where improvements can be made, but my sense is that in many cases, unless you are comfortable underwriting rents that would be "setting the bar", you simply can't proforma these deals to make sense.
In supply constrained markets like LA, for example I'm seeing 80's vintage garden style deals in the Valley trading for north of $300,000/unit. Would need to exit close to $400,000/unit in 4-5 years to hit a high teens LIRR, which would ultimately mean setting a new price standard for that market/submarket. Generally, that means my exit cap can't be much higher than 5% (which seems insane in 4-5 years considering how many factors could push cap rates higher), and I need to assume some form of substantial rent growth during the hold. LP equity wants to see rent and sales comps that prove all this out, but in many cases they dont exist.
How are those in the value space justifying exit values and assuming the comps arent readily available, are you using other metrics to extrapolate values?
