Underwriting GPR growth rates MF
How do you guys determine the growth rates for GPR in different cities for multifamily assets? I just go based off of what my VP tells me it is, but how does that growth rates get determined?
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I will usually look at what costar says, what the broker says and what the developer says before I ignore all of their 3%-5% yoy growth rates and plop in 2%
Keep in mind though, rents might grow at your underwritten rate but expenses will absolutely grow faster than your underwritten rate.
What growth rate are you using for expenses?
Who said rates have to grow? Maybe rent decline?
the same question still stands, how/where did you get the negative growth rate?
Costar.
For multi, I look at a variety of submarket reports from CoStar, Axiometrics, Yardi, and REIS. If there is consistency, I will average the reports and use that.
Sometimes, in markets like Houston that have been oversupplied, there are pretty bearish rent growth projections. This is where you have to be more thoughtful....if the reports are telling you to expect 1% annual market rent growth, and you are buying a class B building at $1,000 average rents...I would override these projections and use 3% (you are telling me you cant get $30 a month increases on renewal, get-outta-town).
The reports are also saturated by new construction in lease up, so keep that in mind if acquiring older vintage deals.
This is correct. Difficult to get access to all three data providers but still.
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