Multifamily… Buy, Sell or Hold?

MIAMI—When it comes to multifamily, times are changing once again. We’ve been talking to Calum Weaver of CBRE’s Multi-Housing Private Capital Group, about why multifamily keeps growing and whether or not the multifamily supply can keep up with demand.

In part three of this exclusive series, we’re focusing on the buy, sell hold question, as well as how private capital investor profiles are changing. So read on for some sound advice from a South Florida multifamily market veteran whose team recently listed 113 units at Bermuda Cay in Boynton Beach, one of the last fractured condo deals in South Florida. If I’m a multifamily owner, I’d be asking myself: Should I sell, hold or refinance? What’s your advice?

Weaver: From a price perspective you’d do well to sell now, there are plenty of buyers out there. If your debt is maturing in the next three years, it’s a good time to lock in refinance because the debt market is still pretty fluid. The fundamentals will continue to stay strong for the next 12 to 36 months. So if you do refinance and lock in you should be able to ride the wave of positive trends going forward. Has the profile of the typical private capital investor changed?

Weaver: Some of the more aggressive activity has come from foreign and first-time buyers who are diversifying their overall investment portfolios. They’re seeking a steady predictable cash flow generation of 5% to 7% all-cash IRR, or on a leveraged basis, in the low to mid-teens. This is an attractive proposition in a low yield environment, especially as inflation risks emerge.

Many buyers are taking advantage of low interest rates. Consequently, all-cash buyers, which in previous years had the advantage to move quickly and close transactions are now facing stiff competition from buyers who are financing deals. How are changes in the mortgage market and interest rates affecting trades? Will interest rate movement decrease value of properties?

Weaver: However you want to spin it, by any metric, interest rates are  still at historic lows. They have gone up in the last 90 days, and that could affect the value of certain properties up to maybe 5%, but it’s really going to depend on the location and the property.

It hasn’t changed the equation, as it were—I don’t see any drawback on trading activity in the foreseeable future. And liquidity in the multifamily lending market continues to favor borrowers. There’s strong activity among local banks, CMBS, FHA and insurance companies. And this access to cheap debt is encouraging confidence in investors. They’re willing to finance stabilized properties  at a 75% loan-to-value ratio in the mid 4% range.