Value-Add Multifamily Investments
Had a couple of questions relative to value-add apartment investing in the currently market. It seems as though most/many LP equity groups have re-calibrated their return expectations as multifamily has seen a phenomenal run coming out of the recession. Most deals I am seeing (I focus on the west coast) have already been bought and sold at least once since 2011-2012, not much meat on the bone, alot of partially-rehabbed deals or similar.
That being said, those of us who are in the space still need to dig for deals, and often times need to talk ourselves into believing the "upside" story.
For value-add deals, are LPs generally still looking at the back end IRR as the major metric for deals? I keep hearing that LPs are drawn to multifamily due to the yield play, which would imply that they are looking at cash on cash yields, no? Most 3-5 year heavy value add deals I am underwriting have fairly shitty yields through the rehab period, unless you assume a refinance scenario after the rehab is complete and then just hold for a nice cash yield and maybe take a lesser IRR by holding longer term. Is anyone out there underwriting value deals for LP equity where the LP wants to hold for longer term to milk some cash flow post-reno?
Regarding debt financing, is floating bridge debt the best execution assuming a 2-3 year rehab? I haven't done much non-agency debt on multifamily, but on some of the commercial office value deals I did, getting 65% initial funding plus 100% of capex and TIs/LCs was achievable (250-350 over LIBOR pricing). On multifamily, is it possible to get 70%+ LTC on deals and have lender fund the reno capital through the loan?
Assuming that the strategy was to refinance the bridge debt after 3 years with longer term (i.e. agency) financing and enjoy 5-7 years of decent COC, how are the agencies generally sizing the take out? Debt Yield, DSCR, etc? Is interest only available on a refinance scenario, or would it typically be amortizing? Assuming that bridge debt was taken out 100% with no cash out (likely leverage on refi would be 60% of the new stabilized value).