It’s All About Yield And Returns
A report from Bloomberg. “The Hidden Villa Apartments, a 61-unit complex in Beaverton, Ore., is the kind of property investors love and affordable-housing activists ignore. Built in 1968, it was acquired recently by an out-of-town developer who plans to tear up the old carpeting and roll in some stainless steel appliances. The idea is to attract the wealthier workers flocking to knowledge industry jobs in the Portland, Ore., metropolitan area and charge higher rents. Sixty-one cheap apartments gone, 5.6 million to go.”
“‘When we started out, our model was, let’s buy from the slumlords and create habitable housing,’ said Max Sharkansky, managing partner at Trion Properties, a decade-old Los Angeles-based property manager that bought Hidden Villa. The company targets deals where it can raise rents by 25 percent, often more. ‘If someone can’t afford it, they can move into something older or more vanilla and pay the lower rent,’ Sharkansky said. In the submarkets that his company targets, those kinds of apartments often no longer exist. ‘Usually the only option is to move out of the neighborhood.’”
The Real Estate Journal. “The multifamily sector is soaring across the country and the Midwest. The St. Louis market is no exception, as developers continue to bring new units to the region. Midwest Real Estate News recently spoke with Andrea Kendrick, a director with the St. Louis office of Berkadia Commercial Mortgage, and Kevin Kozminske, senior managing director in the same office, about the strength of the apartment market in St. Louis and the reasons behind its strong performance.”
“MREN: And what about acquisitions and refinances? What does Berkadia consider for these projects? Kozminske: The product we are doing a tremendous volume with is Fannie Mae and Freddie Mac. Again, we look carefully at borrower experience and the past performance of a project. We also look at the borrower’s business plan, especially if the borrower is looking to do a value-add play, if they want to finance the acquisition and repair of an apartment property. Borrowers want to acquire these older properties and renovate them. They want to push up the rents they can get with these older apartment buildings.”
“MREN: How strong is that value-add segment of the apartment sector today? Are you still seeing a lot of investors acquiring old apartment properties to renovate them and then charge higher rents? Kozminske: That has slowed down a little in the last six months as prices have continued to increase. They are trying to find that property to make this play work. That is getting harder. But there is still room for this type of acquisition, especially in the suburban markets. You can add to the counter tops, appliances and finishes and then increase the rents. There is still room for rent to grow in that space.”
From Pensions & Investments. “Real estate money managers are looking beyond the four food groups of retail, multifamily, office and industrial to provide investors with returns in a challenging investment environment. While core funds stick to the four main real estate property types, value-added and opportunistic funds can stray into niches, said David Stone Phelps, a partner in the Los Angeles office of law firm Akin Gump Strauss Hauer & Feld LLP who specializes in real estate transactions, primarily representing real estate managers, capital market clients and institutional investors.”
“‘Opportunistic and value-added funds … can have a broader focus and investment strategy including assets to be repositioned or ‘out-of-favor’ or specialized real estate. In the end it’s all about yield and returns,’ Mr. Phelps said.”
“Andrew Gibbs, senior analyst in the Philadelphia office of Aberdeen Asset Management, agreed that he is seeing many more niche opportunities. There is increased interest from investors as they search for yield, he said. Aberdeen is investing in niches including student housing, medical office and senior housing. ‘We certainly have some concerns about supply pipelines in student housing, particularly at smaller universities,’ Mr. Gibbs said.”
The Bellingham Herald in Washington. “While the local rental market remains tight, it appears rates are starting to flatten out. Monthly median rental rates in Bellingham hit $1,467 in March but have slowly trended downward, hitting $1,439 in August, according to data from Zillow. This is a trend that Bellingham real estate appraiser Tom Follis is also seeing. He doesn’t see rates going down significantly, but, at least, they’re not going up.”
“‘Rents have more or less maxed out,’ said Follis, who also noted that rates ‘rose like crazy’ in 2015. ‘I think landlords were pushing the envelope because the demand was so strong.’”
“It’s possible that the recent addition of several multifamily buildings is finally having some impact on demand. Another student-focused facility called Gather Bellingham is being built on North Forest Street. It will add 423 beds to the Bellingham inventory when it is completed this fall. Construction of other multifamily buildings in Bellingham has been strong for the past two years. According to data from the Bellingham planning department, permits have been approved for projects totaling 964 units from the beginning of 2014 through September 2016.”
From Reuters Investigates. “A third-generation farmer, Matt Gibson eyed a big expansion of his family’s business in late 2011, as grain prices soared in a searing Midwestern drought. By 2015, with grain prices at half their peak, BMO Harris Bank and others creditors sued the Gibson businesses seeking to recoup more than $30 million. The travails of Matt Gibson, 39, and his family are emblematic of a new class of ‘go-go farmers,’ a term coined by fellow Midwest growers and agricultural economists. Many, like the Gibsons, borrowed heavily to expand their farms, then borrowed more in an effort to plant their way out of a commodity price crash, according to dozens of interviews with Midwest farmers, lenders and agriculture experts.”
“Their distress could foreshadow broader economic turmoil in the grain sector, which includes corn, soybeans and wheat. ‘We’re in for a very, very rough time,’ said Jim Mintert, director of Purdue University’s Center for Commercial Agriculture. ‘It’s going to take several years to work our way through this.’”
“A Reuters analysis of federal data on agricultural lending in the grain-producing ‘I-states’ - Illinois, Indiana and Iowa - shows that delinquency rates on farmland and production loans are rising sharply. The federal government doesn’t track large farm bankruptcies, but a special category of bankruptcies for smaller farms - Chapter 12 filings - points to distress in the grain sector. In the top Midwest grain states, the number of Chapter 12 filings, limited to those with less than $4.03 million in debt, were 51 percent higher in the 12-month period ending June 30 of this year compared to the same period in 2013, according to federal court data. In Iowa, the top corn producer, Chapter 12 filings had climbed 125 percent.”
“In all, about one in three U.S. farms raising grain and other row crops, not including cotton, last year were categorized by the department as ‘highly leveraged’ or ‘very highly leveraged,’ meaning their debts equaled at least 41 percent of assets. ‘I expect these categories to get larger,’ Robert Johansson, chief economist for the U.S. Department of Agriculture, told Reuters.”
“Some lenders, eager to grow their portfolios, stopped following their own lending guidelines, said Joseph D. Roach, farmer and former agricultural banker, and other lenders and lawyers interviewed by Reuters. Grain cooperatives, equipment makers, seed sellers and other entities also extended easy credit, he said. ‘I started to notice all these bankers letting the farmers have more rope,’ said Roach. ‘They couldn’t give out the money fast enough.’”
