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Thursday, 10 April 2014 17:59

Market Watch - April 2014

The fed is continuing their reduction in bond buying and ironically the saving grace of low interest rates is typically bad news. First with East Coast blizzards, and currently the Ukraine geopolitical issues, the trend and momentum is still in the direction of rising interest rates.

 

Second quarter financial news could very well spurn a flight from low yielding rate bonds into the more aggressive equities. Needless to say investors need to capitalize on these rates and terms now, especially all non-cash buyers. 

 

By: Gill Figueroa, First Commercial Capital

Last modified on Wednesday, 20 August 2014 23:02
Friday, 28 March 2014 17:48

Market Watch - March 2014

After hitting a low of 1.55% on March 18, 2014, the 5 Year Treasury has since proceeded to increase over .20 basis points - an increase of over 12%  - due to the market's fear that the Federal Reserve may soon scale back it's bond buying program.  For existing owners and commercial real estate investors, this move requires action if they are to capitalize on the soon to be fleeting 40 year low in interest rates.

 

As the aforementioned data and East Coast winter's thaw suggest, a negative impact on interest rates could be imminent. With consumer spending likely to spike upward as a result, a federal reserve move  is inevitable.  Therefore, don't wait, now is the time to lock in those rates.

Last modified on Friday, 28 March 2014 17:53
Tuesday, 28 January 2014 02:01

Market Watch - January 2014

Due to the coupling of weaker than expected retail sales and global currency dislocations, the 10-year Treasury resistance threshold of 3% remains unbroken. Investors have sought refuge from volatile emerging markets in safe haven assets like the US Treasury, causing an approximate 0.20 basis point dip in interest rates.

 

It is likely that this trend will only strengthen as global capital continues to move toward minimizing risk and American investment opportunities. As a result, it seems that a growth curve gap between multifamily investments and retail assets is inevitable. Retired multifamily investors can take advantage of this opportunity and invest in management-friendly triple-net (NNN) transactions.

Last modified on Tuesday, 28 January 2014 02:07
Thursday, 26 December 2013 23:03

2014 Capital Markets Outlook

The Federal Reserve's most recent decision to reduce its level of bond buying is likely to increase bond yields and trigger a rise in interest rates. For example, the 10 Year Treasury Note which has been trading under 3% could very well break that resistance, leading to an eventual 0.250% to 0.500% point correction in the market.

 

Such a rate increase certainly affects the borrowing leverage apartment buyers can obtain. To demonstrate, using today's overall qualifying rate of 4.25% with a standard 1.20 debt service, a property that yields a Net Operating Income of $40,000 would qualify for a loan amount of $562,000. If rates increase by 0.500%, the loan amount would be reduced to $530,000, representing an almost 5% difference in leverage for a borrower.

 

Overall sentiment remains very positive. Implementation of the new Dodd-Frank Walll Street Reform and Consumer Protection Act which requires creditors to make a reasonable, good faith determination of a consumer's ability to repay any consumer credit transaction secured by a dwelling of 1-4 units will create significantly more financing options for borrowers since more banks will venture into the commercial lending sector, fostering more competition and potential increases in their multifamily funding capacities. The renter pool is also likely to increase as some cities continue to experience gentrification as a result of more and more industries shifting to a 30-hour work week due to our nation's health reform laws.

 

While we remain very bullish in terms of vacancy and rental values, buyer and sellers who act now and take advantage of current market conditions significantly benefit by procuring better terms while avoiding the pitfalls that come with interest rate increases, stressed cap rates, and less leverage.

Last modified on Thursday, 26 December 2013 23:25
Monday, 10 June 2013 17:04

Job Growth's Effect on Multifamily

A recent GlobeSt.com article - "California Labor Market Surges Ahead" - shared much welcomed news about the 2% annual increase in jobs (roughly 285,000 of them) in the state of California since last March. And in March of 2013 alone, the EDD reported a statewide gain of 25,500 jobs with Los Angeles County leading the pack with 11,900. Coming out of a recession, news of job growth is always a plus, so how has it been affecting the multifamily sector?

 

1. Household formations are on the rise...

During the crisis, when jobs were in the doldrums, we saw the public shying away from homeownership in favor of renting. We also saw young adults living with their parents or taking on roommates. Now, with the improvement of the labor market, there's been an uptick in new household formations, both in single-family and multifamily.

 

2. Rental demand is up...

The single-family residential market is red hot. It's great for those with cash or those who can qualify for a loan under today's strict lending guidelines, but for those who can't, renting is the next best alternative to homeownership, and it beats living with mom and dad.

 

3. Effective rent growth rate is on the decline...

Rents are growing at a slower pace and have been for the past three quarters. As a point of comparison, in 3Q2012 the rent growth rate was at 0.90%, followed by 0.70% in 4Q2012, and most recently 0.40% in 1Q2013, according to the latest LA Metro REIS Report. I say this is a supply and demand issue; perhaps the byproduct of the completion of nearly 2,000 new units builders have added to the rental inventory over the past five quarters in the LA Metro area alone.

And consider this...could the declining rent growth rate combined with the recent uptick in interest rates be a sign that we're fast approaching -- or perhaps we have already approached -- the peak of the multifamily market?

 

4. Investors' appetites for risk may increase...

While there will always be demand for "safer" investments such as turnkey properties in prime locations where the returns are smaller but more stable, investors will start seeking opportunities with more risk, a.k.a. more upside, as the fundamentals of our economy continue to improve, especially if interest rates remain low.

 

How has the job market been affecting your investment plans? If you've been trying to time the apartment market, now is a good opportunity to evaluate your portfolio and make an informed decision. Call us today to see how we can help you maximize the value of your property in today's market.

Last modified on Tuesday, 10 December 2013 06:34

Mom always said, "You only have one chance to make a great first impression," and (as usual) she was right. Little did you know that this sage advice would one day apply to your apartmen buildings. Yes, common sense says that the appearance of your apartment building can directly impact the amount of rent you can charge for a unit and the quality of the tenants you attract -- both of which affect your bottom line as a landlord and the value of your property.

 

Tenants who value cleanliness, pay attention to detail, and appreciate pride of ownership seek living situations that match their lifestyles. Put yourself in your tenant's shoes -- if you were looking for an apartment to rent, wouldn't you think that the appearance of an apartment building is a direct reflection of the values of the landlord?

 

Considering the above, how can you ensure your apartment building makes a great first impression without breaking the bank? As multi-family investment brokers in Los Angeles, we get asked this question a lot. Below are some of our favorite go-to tips for easy, cost-effective repairs (inspired by Craig Berendt's recent article, "Getting Your Property Rent Ready...") that will make your apartment investment stand out in all thr right ways and appeal to quality tenants:

 

  • Repaint: Keep the units, common areas, and doors looking fresh and clean, free of scuff marks with a fresh coat of paint. Don't simply "touch up" because it rarely looks as nice as it should. (Money Saving Tip...try a power wash of the building's exterior before deciding to paint. Maybe all it needs is a good scrub down).
  • Refinish / Reinstall: Floors lliterally get walked all over, not to mention spilled on and scratched up. Keep wood, laminate, vinyl, tile, and carpeting from showing their age through regular cleaning, and the occasional refinishing or reinstalling if necessary.
  • Re-caulk / Re-grout: Caulking and grouting can prevent water damage and the potentially costly problems associated with it. Give those kitchen sinks, bathroom sinks, tubs, showers, and counter tiles a little extra TLC today to prevent a headache tomorrow.
  • Resurface: Chipped or worn porcelain surfaces can make tubs and sinks appear uncared for. A little attention can make them look like new.
  • Remove: Anything that detracts from the attractiveness and cleanliness of the property should be removed. This includes trash, clutter, overgrown landscaping, stains, and dirt from both the exterior and the interior of the building and grounds.
  • Repair: Roof, plumbing, electrical, etc. All of these are essential elements of an apartment building that require regular maintenance and upkeep.
  • Replace: Considering replacing old appliances to give units a newer feel, especially if the appliances have reached the end of their useful lives. This could save you money on recurring repair costs.

 

A word about remodeling and replacing -- remodels and replacements differ from repairs altogether. Hence, they require different considerations when deciding on which you should do. Keep in mind that repairs and maintenance fall into the category of regular operating expenses, while remodels and replacements fall into the category of capital expenditures. Depending on your individual circumstances, a remodel or replacement may make perfect sense. In other cases, a few simple repairs might be your best bet. Tax-wise, they're treated differently, so talk to your tax advisor about the implications of each before deciding which route to take.

 

Remember, proper upkeep of your apartment building's appearance is a great way to justify and garner higher rents within reason. Your apartment building's rents are directly impacted by the property's location, condition, vintage, any applicable rent control laws, and the actual market rents being collected by comparable apartment buildings in the neighborhood. So, it only makes sense to reinvest strategically in your building to make sure you're capturing the highest possible rents achievable for your property.

 

Effect on Property Values

Let's take this one step further. Assume you want to sell you apartment building down the road. Of course, you'll want to sell it at the highest possible price, right? Now imagine you didn't make the necessary repairs or take initiative to make strategic upgrades. What's the smart buyer going to do? The smart buyer is going to examine your building and compare it to the recent sold comparable properties. If your building's roof is in disrepairs, the plumbing is shot, the floors need replacing, the electrical panel is outdated, and your building is going to require $100,000 worth of work to bring it up to par, guess who's going to pay for it? You, the seller. And guess who's going to benefit? The buyer. When you sell the building, whether it's in the form of a credit through escrow, or a discounted purchase price, it's coming out of your pocket.

 

Wouldn't you agree that it's better to maintain and upgrade your apartment building while you're still around to reap the financial benefits? The moral of the story is that a little bit of strategic, periodic expenditures can go along way in maximizing your income today, preventing future headaches, and protecting your property's longer term value.

 

How do you attract quality tenants and garner higher rents? This e-mail address is being protected from spambots. You need JavaScript enabled to view it.

Last modified on Wednesday, 13 March 2013 17:18
Sunday, 02 September 2012 19:39

www.AptBldgTrader.com Re-Launch!

The team at www.AptBldgTrader.com is proud to announce that the much anticipated re-launch for our website has finally arrived! Please visit our website pages and tell us what you think of the improvements we have made and our new look. Our goal is to provide you with a site that is simple to navigate and includes data and information specifically related to multi-family investments in the major submarkets where we serve sellers and buyers throughout Los Angeles. We have also included more background on our team, the markets we cover, and details of our services. If you have any questions on how we can be of service to you, feel free to email or call us today!

 

Thank You – Raymond A. Rodriguez

Last modified on Tuesday, 06 May 2014 23:47
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