*opinions are my own—NOT Berkadia’s or my partners.*
Consensus
Whether you agree or disagree, understanding what your multifamily acquisition peers are thinking today is important.
Inflation, rising interesting rates, an energy crisis, and geopolitical uncertainty is creating a soup that smells like there’s an asymmetric risk to the downside in making a bet today.
As such, consensus and the general response nowadays is: “why would I try to catch a falling knife?”
Multifamily
Practically every asset class outside of oil & gas is taking it in the chin right now.
Facebook’s stock (META) that hit a pandemic low of $150 and a pandemic high of $375 is now trading for $125.
You don’t need me to tell you that when sellers are asking for a 4.00—4.50% cap rate when debt is at +5.50%, you likely wont see that many transactions.
I’m not saying cap rates need to be or even get to 5.50%, by the way.
Although most syndicators are on the sidelines today, discretionary funds and other institutional groups are willing to buy multifamily assets with some negative leverage today given they project positive leverage in year 2 of ownership and beyond.
The amount of negative leverage a buyer is willing to take today depends on how much value add (i.e. growth) they see at the individual asset level.
Whether trades start picking up again closer to 4.00% cap rates or 6.00% cap rates is yet to be seen. In the meantime, some sellers will sell and some buyers will buy somewhere in between. Think merchant builders and 1031 exchanges.
Ultimately, interest rates are hard to control, and even harder to predict.
More importantly, whether you start buying in earnest again today or a year from now, where are you going to buy multifamily assets once the world generally agrees on pricing?
I like betting where I see a lot of demand and less future supply.
Miami
Where are people moving to (demand) and where do you see a lack of land (supply)?
The million dollar question earlier this year was whether The Great Pandemic Wealth Migration (WSJ) we saw to Miami in 2021 was going to continue or not…
Instead of talking my book as I surely always do, here are just some recent data points:
California residents moving to Florida at a record pace in 2022
- tracked by CA licenses exchanged for FL licenses by the DMV.
Miami came in at the No. 1 spot for business travel revenue growth
Brightline ridership continues hitting record levels, surpassing +100K in August 2022
Aventura to Downtown Miami in 15min as Brightline Station Tops Off
- services expected to open December 2022.
Remember that migration trends have network effects.
As family, friends, and colleagues move, more people will be inclined to follow suit.
I can’t wait to see what this city looks like in 2030.
Here’s to hoping someone at a discretionary fund flushed with cash is reading this,
Until next time,
Omar
Active Listings:
We’re selling 14 acres of land in Broward County, which is extremely hard to come by, and the newest garden-style asset closest to Downtown Fort Lauderdale.