SPECIAL FOCUS: CAPITAL MARKETS OUTLOOK 2008
APARTMENT FINANCE TODAY • JANUARY 2008
Buying
Opportunity
Ahead?
After several years in which savvy
apartments owners were more likely to
sell than to buy, that dynamic appears
likely to change. For APARTMENT FINANCE
TODAY readers, the best opportunities in
2008 may be in Class C and to some
extent Class B properties in secondary
markets.
“Many investors have been frozen
with fear of a changing market and
have held off on making any big
moves. Because of this, there is a
ridiculous amount of money just waiting
to be invested,” said Jerry
Anderson, president of real estate brokerage
Sperry Van Ness.
He said institutions and real estate
investment trusts will be able to make
solid purchases, since they will no
longer have to compete with as many
private investors “throwing money at
properties in order to snatch them up
quickly.”
The multifamily market will see
increasing differentiation in value
based on location and property quality
in 2008. That means you may still find
some good opportunities in Class B
and Class C properties in smaller markets—
if you are very careful.
With capitalization rates rising and
expected to go higher this year, you
may be able to find properties that are
no longer overpriced compared to their
potential for net operating income
(NOI) growth. A cap rate, which is a
property’s NOI divided by its purchase
price and expressed as a percentage, is
a measure of return on investment.
However, with lenders shunning risk,
you will also have to tell a very persuasive
story about how you will raise
rents and increase net income.
Cap rates this year will rise between
50 and 75 basis points for Class B
properties and 75 to 125 basis points
for Class C properties, said Linwood
Thompson, managing director of the
multifamily housing group at Marcus &
Millichap.
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