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There’s Still A Considerable Delta Between Sellers’ Expectations And What Buyers Are Willing To Pay

A weekend topic starting with RE Business Online. “The multifamily sector is like the Energizer Bunny, says Jamie Woodwell, vice president of commercial and multifamily research for the Mortgage Bankers Association (MBA). Although 600,000 units are currently under construction nationally — maintaining an elevated level of building activity that is the highest since the mid-1970s — consumer demand remains strong. ‘It just keeps going and going and going, he said.”

“Mortgage banker originations of multifamily mortgages are forecast to rise 1 percent this year to $264 billion, with total multifamily lending at $315 billion. MBA expects these originations totals to continue through 2020. ‘We’re up to $3.3 trillion of commercial and multifamily debt outstanding,’ Woodwell informed the audience. ‘Banks are holding the largest share.'”

From Bisnow. “Sonnenblick Development Chairman Bob Sonnenblick has had enough with the high cost of doing business in Los Angeles, Orange County and California in general. Even with Gov. Gavin Newsom wanting to build new housing and state Treasurer Fiona Ma wanting to keep businesses here, Sonnenblick wasn’t sure there was any way to keep his business in California.”

“‘I don’t think there is an answer,’ he said. ‘The only thing that is going to keep developers here is if the price of land and price of construction comes down and that’s only going to happen if we go into a recession. I don’t think the governor or any of the state officials can control that.'”

From Multi-Housing News. “There has been some cooling of price and income expectations, but buyers are still enthusiastically grabbing up San Francisco and Silicon Valley multifamily. Levin Johnston’s Robert Johnson and Adam Levin shed light on this trend and others.”

“Levin: Investors are still quite confident in the multifamily market here, and investment levels remain strong. That said, buyers recognize that this expansion has been extremely long, and they are more realistic about the pace of price growth now than they were a few years ago.”

“Levin: While demand for multifamily is solid and there are compelling reasons to invest in this sector here, there’s still a considerable delta between sellers’ expectations and what buyers are willing to pay. We have been encouraging sellers to be more realistic in their pricing and to take heed of current cap rates.”

The Express News in Texas. “Nearly 3,000 housing units are currently under construction in and around downtown San Antonio, according to figures provided by the city. Another 1,600 are in the planning stage. Sluggish job growth in the San Antonio region last year has some analysts worried that multifamily apartment development could slow further. ‘That’s what I’m most concerned with now,’ said Bruce McClenny, president of Houston-based ApartmentData.”

The Times Free Press in Tennessee. “A new report shows a mixed bag over how well some of the array of downtown Chattanooga apartment projects are doing, with a couple less than half leased. The Market City Center apartments are only about a third leased after well more than a year on the market.”

“Another apartment complex, 1400 Chestnut near Chestnut and West Main streets that opened late last summer, is gradually leasing up its 200 units with fewer than 40 percent filled, the report showed. What’s needed, said developer John Healy, is for Chattanooga economic developers to do a better job of recruiting companies to locate downtown.”

“‘That’s where the rubber hits the road,’ Healy said. ‘We’ve got to do a better job recruiting companies to come here.'”

From Tuscaloosa News in Alabama. “A student-based housing development has been approved by the Tuscaloosa City Council with fewer bedrooms than originally planned. Some, though, contend that Tuscaloosa already is oversaturated with student-based housing. This is what led the City Council to impose a temporary moratorium on any vote that would allow the development of any multi-family complex of 200 bedrooms or more.”

From GlobeSt. “Student housing and multifamily are both considered recession-resistant asset classes. The reasoning is simple: even in a down market, people still need a place to live and students still go to college. While multifamily has been favored, student housing may actually perform better in a down cycle, according to Frederick W. Pierce, IV, of Pierce Education Properties.”

“An inverted yield curve isn’t the only reason that Pierce is predicting a recession. Like other experts, he is concerned about the length of the cycle and rising interesting rates. ‘The fact that we are in the longest period of expansion since the end of World War II, which must come to an end at some point, the negative impact that recent increases in interest rates have had in many sectors, the degree of volatility in the equity markets and the unpredictable political climate all point towards the eminency of a recession,’ he says.”

The Real Deal on New York. “The Rabsky Group sold one of its large Williamsburg multifamily buildings for $130 million to Denver-based landlord UDR, which is buying at a time when several large apartment REITs are retreating from the New York market. The purchase price of $132.2 million works out to more than $700,000 per unit.”

“The Colorado-based real estate investment trust, which has a market capitalization of $12.3 billion, made the purchase at time when competitors such as Equity Residential and AvalonBay Communities are limiting their exposure to the New York City market over concerns about a glut of new apartments.”

From Multi Housing Pro on Florida. “CGI Strategies has acquired Sola at Celebration, a vacant 306-unit luxury multifamily community in Celebration, FL. The property was purchased from Southstar Capital Group in a transaction valued at $43 million.”

“Developed by Hines in 2015, Sola was sold to Southstar at the end of 2016. Shortly after, construction defects were discovered which resulted in the property being vacated by order of the Osceola Building Department.”

“Los Angeles-based CGI, a real estate investment firm founded in 2013 to focus on strategically located multifamily and mixed-use development as well as the acquisition of special situation real estate, plans to correct the deficiencies and stabilize the asset, according to CEO Gidi Cohen.”

“‘I’m sure there were many who looked at Sola and were turned away by the size and scope of the corrections that needed to be made,’ said Cohen. ‘Having successfully dealt with projects like this in the past, at our cost basis we were confident in our ability to remedy the problems and return a true Class A resort style project to a market that exhibits exceptionally strong multifamily fundamentals.'”

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This Post Has 37 Comments

  1. ‘at our cost basis we were confident in our ability to remedy the problems’

    = We paid pennies on the dollar.

  2. ‘limiting their exposure to the New York City market over concerns about a glut of new apartments’

    Concerns? These suckers paid $700,000 per door.

    1. Interesting. As someone who loves music equipment I don’t know how you make something like that useable while still preventing all the good stuff from walking off.

  4. “The multifamily sector is like the Energizer Bunny, says Jamie Woodwell, vice president of commercial and multifamily research for the Mortgage Bankers Association (MBA).

    You keep telling yourself that, Jamie.

  5. OUTLOOK 2019: Build it and they will come; Landino, Krezeczowski mine gems hidden along Sharon streets

    ‘JCL Development also has in the works a $1.8 million dollar apartment complex that Landino refers to as “Jolly River,” on the north edge of the Penn State Shenango campus.’

    “We’re moving 30 kids, hopefully, into downtown Sharon, that have never had a specific apartment for Penn State,” Landino said. “Thirty kids are walking around downtown with a credit card in their pocket. That might be a pretty good thing because right now, they’re driving in and they’re driving out.”

    https://www.sharonherald.com/news/local_news/outlook-build-it-and-they-will-come-landino-krezeczowski-mine/article_ec46663e-f806-58bb-a8cc-c950113b6e6b.html

  6. I like the freedom of renting. I also like free weekends!
    You don’t have to rent an awful apt, ya know.

    1. Life without Realtor can be exceptional. It’s like not having any tattoos or having ever had an STD.

  7. Along the same lines:

    Too much money invested in cloud companies, says Zoho CEO Sridhar Vembu

    “An excess of capital in the cloud space has led to overcapacity, and many venture capitalists have admitted to this,” said Vembu, speaking exclusively to CNBC-TV18, at the launch of the updated Zoho Office Suite.’

    “There are nearly 30,000 cloud companies across the world, and India has a few thousand, he said. “There could be a situation like in China where industrial overcapacity the steel sector has impacted the business. Similarly, overcapacity and overfunding in the cloud space could impact this business, if this excess funding goes unchecked.”

    ‘In Vembu’s words, Zoho One has turned into the company’s own version of Amazon Prime. “We managed to start a price war with the launch of Zoho One, since it allowed us greater value proposition for enterprise capabilities,” he said. “So, it’s similar to Amazon Prime in terms of offering those propositions.”

    ‘But what Zoho One could also manage to pull off, is catalyse an inevitable price-cut in the enterprise software space. “Enterprise software today is overpriced, and will see price-cuts in the next five or ten years,” said Vembu. “We are already ahead of the curve since Zoho One is aggressively priced. We expect more players to bring greater value to their enterprise offerings.”

    https://www.cnbctv18.com/retail/too-much-money-invested-in-cloud-companies-says-zoho-ceo-sridhar-vembu-2300141.htm

      1. Well, it depends on what you classify as “Cloud”. There definitely aren’t 30,000 Amazon, Microsoft, and Google-class cloud companies.

        1. sorta exactly 😉

          will the ‘space’ be able to have big players like those plus 30000 others in a way that makes sense?

          1. Maybe not all 30,000, but remember that Windows itself was just one OS and there were tens of thousands of software companies that focused just on that. Many of them were small, but it was a large ecosystem. I don’t see why Cloud can’t create that many opportunities.

    2. “An excess of capital in the cloud space has led to overcapacity …”

      Hmmmmmm … “an excess of capital” has led to “overcapacity”.

      Here’s an interesting chart …

      https://goo.gl/images/Qi1daw

      Oh, “… and many venture capitalists have admitted to this,”

      So – what? – are these people just plain stupid?

      Q. Just who is It that owns this “excess capital” that is destined for destruction? Yellen bucks, perhaps? Future IPO investors? Who?

      1. “We managed to start a price war with the launch of Zoho One, since it allowed us greater value proposition for enterprise capabilities,”

        Well, now there’s an interesting statement.

        Let’s see: There are currently 30,000 cloud companies on the planet, overfunding is continuing to add to capacity – is continuing to add to overcapacity – and this company has started – willingly started – a price war.

        This entire planet is populated by morons, morons with access to money, money that probably belongs to somebody else.

        1. An interesting read …

          How venture capital is hurting the economy  | PitchBook
          https://pitchbook.com/news/articles/how-venture-capital-is-hurting-the-economy

          (snip)

          “This is a golden age for venture capital and the startup ecosystem, as illustrated by PitchBook’s latest PitchBook NVCA-Venture Monitor. So far this year, $57.5 billion has been invested in US VC-backed companies. That’s higher than in six of the past 10 full years and is on pace to surpass $100 billion in deal value for the first time since the dot-com bubble.”

          Lots of money chasing ideas. Check.

          (snip)

          “Instead of spending millions, or billions, in the pursuit of unicorns that could emulate the ‘winner-takes-all’ technology platform near-monopolies of Apple and Facebook and the massive capital gains that resulted, VC investors and their LP backers could instead be buying a bunch of fat Cheshire cats. Bloated by overvaluation, and likely to disappear, leaving just a smile and big losses, since many software-focused tech startups have no tangible assets.”

          (snip)

          “The problem is that this cycle has been marked by easy capital and a fetishization of the early-to-middle parts of the tech startup lifecycle. Lots of incubators and accelerators. ‘Shark Tank’ on television. ‘Silicon Valley’ on HBO. Never before has it been this easy and cheap to start or expand a venture.

          “Yet on the other end of the lifecycle, exit times have lengthened, as late-series deal sizes swell, reducing the impetus to IPO (in search of public market capital) or sell before growth capital runs out.

          Public markets, while performing well, have been marred by still-burdensome IPO-related regulation (a point the NVCA recently made), a shift to “passive” investment strategies (and thus, a pilling in on mega-market capitalization stocks like Apple), and a lack of small- and micro-cap analyst coverage. IPO activity has been underwhelming, resulting in a steady decline of publicly traded companies.

          “Why is this a problem? Because, in the view of Kenney and Zysman, the VC industry lacks discipline, seeking disruption and market share dominance without a clear path to profitability. You see, VC-fueled startups aren’t held to the same standard as existing publicly traded competitors who must answer to investors worried about cash flows and operating earnings every three months. Or of past VC cycles where money was tighter, and thus, time to exit shorter.”

          Etc.

          1. Oh LORDIE I am happy to see that sort of reporting!
            It’s sort of like HGTV flip or flop mentality, but with appealing to VC and bigbois trying to impress the markets with their acquisition savvy instead of to sucker greater-fools. The incubator world feels like software renovating-and-staging operations sometimes, and the billions that seem to be available for the next-big-thing seems to be chasing hype more than anything. Look at the salaries and job openings at tech startups sometime–the marketing peeps make more than the engineers cuz they drum up the VC and such. It feels like an awfully big bet that all that capital is going to be well-spent. And then the “winners” in the Shark Tank and incubator battles take their winnings and speculate in RE most likely lol, or maybe merely in ‘propfintech’ or somesuch…so little of any value gets added to our world…

          2. Seems like vulture capital has done a wonderful job of strip-mining some of the twentieth-century retail chains of their real estate assets.

          3. yes, that particular mining op has worked so well it almost seems like it was planned! I hope someone does the lawsuit so we can see what’s to be seen in discovery, that would be very fun.

  9. “Considerable Delta Between Sellers’ Expectations And What Buyers Are Willing To Pay“

    As mentioned constantly on this blog, sellers “could” sell there shacks if they got realistic with pricing. How about settle for a 25% profit instead of insisting on the 200-400% your asking. I am noticing the amount of profit the greedheads are chasing has been coming down for new listings but all the stale shacks with 100+ DOM are still priced like 2017.

    Is a $1,350,000 price reduction a lot?

    https://www.zillow.com/homedetails/383-Beach-Dr-Aptos-CA-95003/16139561_zpid/

    1/20/2019 Listed for sale $3,850,000
    12/14/2018 Listing removed $4,800,000
    6/20/2018 Price change $4,800,000
    2/14/2018 Listed for sale $5,200,000
    9/28/1999 Sold $625,000

    This one is interesting too. This FB / specuvestor must have got cold feet and is trying to unload the crap shack

    https://www.zillow.com/homedetails/512-Gertrude-Ave-Aptos-CA-95003/16134819_zpid/

    2/12/2019 Price change $619,900
    1/8/2019 Listed for sale $649,900
    8/15/2018 Sold $545,000
    7/26/2018 Listing removed $900,000
    7/20/2018 Price change $900,000
    3/29/2018 Pending sale $525,000
    3/21/2018 Listed for sale $525,000
    3/15/2017 Listing removed $525,000
    3/14/2017 Pending sale $525,000
    3/13/2017 Listed for sale $525,000
    11/1/2000 Sold $201,500

    1. “How about settle for a 25% profit instead of insisting on the 200-400% your asking.”

      They’re not just going to give it away!

    1. “thank goodness all those FBs who signed on Mr. Bankers’ dotted line for mortgages they couldn’t afford will move heaven and earth to make sure they stay current on their mortgage payments.”

      I don’t thank “goodness”, I thank our wonderful educational system making all of this easy money possible.

      Dumb ’em down, and profit. The educational system we have has done its part, and now it is time for me to do mine.

      😁

  11. A discussion of pent-up demand:

    “So far, tenants have snapped up the huge surge in new supply, confounding predictions of a saturated market. Companies continue to add jobs here, and young adults continue to move to the Front Range to fill those jobs. Plus, a lot of native millennials still live with family, leaving another pent-up base of demand.”

    Read more: http://www.city-data.com/forum/denver/3015370-denver-apartment-construction-too-hot.html

    1. Are you going to spend a couple of nights camping out on the sidewalks with the people when you get to San Francisco ?

  13. “Upcoming changes in how Internet Sales Tax may apply to your eBay business”

    Therefore, based on these new laws, we will calculate, collect, and remit sales tax for orders shipped to customers in the following states on the following schedule:

    Washington—starting Jan 1, 2019
    Pennsylvania— starting July 1, 2019
    Oklahoma—starting July 1, 2019

  14. For those that think that Trump is an idiot or crazy, I strongly suggest you watch Scott Adams: The Three Pillars of TDS. I then suggest you familiarize yourself with Dan Bongino’s Spygate: The Attempted Sabotage of Donald to understand the extent to which the FBI, DOJ and CIA were weaponized for political purposes during the Obama administration. Next, I ask you to appreciate that Adm. Mike Rogers, NSA Director beginning under Obama, and Lt. Gen. Mike Flynn, DIA Director under Obama, are now Trump’s allies/advisors. These two men know where all the bodies are buried and who is friend or foe. For those willing to push through the cognitive dissonance and use their critical thinking skills (I have faith in you, CrazyHouse), you will see the ongoing worldwide war against globalism. It’s all connected!

    1. Sure I’ll try going through that some time, but just to let me get one thing straight for now…so, Mike Flynn was fighting against globalism from inside the Obama admin and went to work for Trump to further that anti-globalist agenda and that’s why he got ‘targeted’ by the deep state? I’m just trying to understand because I’d thought Flynn was working as an unregistered agent of Turkey and possibly Russia lol? But that too was part of the anti-globalist agenda? I’m not sure I understand what some folks mean by “anti-globalist” maybe…

      1. I haven’t seen anything to suggest that Flynn entered the Obama administration to fight globalism. I think he found himself in a globalist administration with which he didn’t agree. His public opposition has made him a target.

    2. For those willing to push through the cognitive dissonance and use their critical thinking skills (I have faith in you, CrazyHouse), you will see the ongoing worldwide war against globalism. It’s all connected!

      I don’t see any ongoing worldwide war against globalism. What I see is an infinitesimally small but growing number of red-pilled people who see globalism for what it is: a scam to concentrate all wealth and power in the hands of a corrupt and venal .1% in the financial sector. Some of the screwed-over proles are resisting – such as the Yellow Vests in France – but right now – and as the middle and working classes in this country become increasingly pauperized by the financial warfare being waged against them by the elites, more will start waking up. But right now the globalists have things pretty much their own way, thanks to their capture of the media-entertainment complex, our financial system, the judiciary, and their puppets in the Establishment political parties.

      1. well stated. and I don’t see a deep-state from within only the previous administration that is fighting desperately against the anti-globalist force represented by DJT. Such a narrative is a good and time-tested way to create a loyal and grievance-focused base however, especially if you toss in a little in-group/out-group spice. Illegal immigration and exploitative “legal” immigration aside, the in-group/out-group dynamic that is relevant really is Wall Street financialism benefitting the oligarchs and the 1%, versus the rest of us.

        1. Globalism has been at the heart of administrations dating back to GHWB. Some would argue further back. I think it kicked into high gear with GHWB.

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