Freddie Mac’s Plan to Help Cap Rents

Freddie Mac is launching new lower-cost financing to apartment owners who agree to cap rent increases for the life of the loans. From an article in the Wall Street Journal:

The program, announced Tuesday, will begin immediately and be available all over the country. Mr. Brickman said he hopes hundreds of properties will take advantage of it.

The initiative comes at a potentially appealing time for real-estate investors who are facing a slowing rental market. Freddie Mac will provide mezzanine debt—which is more risky but pays a higher interest rate than senior debt—at below market cost.

While rent increases have naturally slowed over the past year or so, the initiative protects tenants from steep hikes when the market accelerates again. Operators who receive the low-cost loans must have at least 50% of the units affordable to households making the local median income or below. Borrowers must then agree to limit rent growth on 80% of units.

REITs With Women on Their Boards Outperform Men-Only Boards

Real estate has a reputation of being an old boys’ network, and while the average female representation on REIT boards has grown from 8.5% in 2006 to 15.5% in 2017, the industry still lags the 22% female representation on other boards of companies in the S&P 500. Now research is showing the lower level of diversity on REIT boards could be having a negative impact on results. From the Wall Street Journal:

That is the conclusion of a new report by Wells Fargo Securities that analyzed 165 equity REITs from 2006 to 2017. The analysis “determined that companies with more than the average percentage of women” on their boards “achieved higher average price and total returns over that period,” the report stated.

The average percentage of women on REIT boards was 15.5%, the report said. The share prices of REITs with higher-than-average percentages outperformed those with no female representation by 1.93 to 2.33 percentage points, according to the report. The outperformance was 1.33 to 1.69 percentage points when both share price and dividend were taken into account…

Of the equity REITs analyzed by Wells Fargo, 34 had no women on their boards. Women made up at least one-quarter of boards at 40 REITs, the report said.

Wells Fargo’s methodology consisted of looking at board compositions at year-end from 2006 to 2017 and calculating share price and total return over a forward three- and five-year period.

Bell Partners Involved With German Firm’s $1 Billion Real Estate Fund

From the press release:

HANSAINVEST Hanseatische Investment-GmbH is creating a new real estate special fund designed to invest in residential real estate in the United States. The fund − known as HANSA US Residential − is geared towards institutional investors who want to be involved with core residential properties in the US. The target fund volume is USD 1 billion, and plans call for equity of some USD 500 million. The distribution yield for investors is forecast at 4.5 per cent p.a. The fund will be traded under the legal form of a German real estate special fund in accordance with the German Capital Investment Code (KAGB).

HANSAINVEST, the Fund Manager, will partner with Bell Partners (Bell) − an apartment investment and management company focused on high-quality multifamily communities throughout the US. At the moment, Bell has over 60,000 units under management. Bell offers an extensive and full service operating platform containing expertise in acquisitions and dispositions, property operations, construction, accounting, risk management, market research and all other related support functions. Since 2002, Bell has completed over USD 10 billion of apartment transactions, including almost USD 1.5 billion of activity in 2015 alone. Bell is also one of the largest apartment renovators in the US.

“Bell Partners is an excellent partner for HANSA US Residential,” said Nicholas Brinckmann, managing director of HANSAINVEST. “Bell provides great market access and the necessary all-round expertise in the multi-family houses segment,” Brinckmann noted, adding that a Bell investment entity will also invest in the fund as a co-investor. “This will enable us to be aligned and have common interests shared by the investors and our local partners,” he said.

“The positive development of the overall economic and demographic data provides a clear argument in the long term for investments in the US residential real estate market. This was what ultimately prompted us to decide to create a US fund,” the managing director of HANSAINVEST said, explaining the strategy further. “What’s more, the legal framework makes it possible to increase rent for residential real estate in the US at much more regular intervals than here in Germany. From the perspective of investors, this is a great benefit,” Brinckmann said.

Geographically, the fund will invest in metropolitan areas with positive demographic and economic fundamentals. The plans call for the properties to be located in strong areas in major cities. The focus will be on residential properties with a volume of between USD 50 million and USD 100 million, including high-rise residential buildings, blocks of flats and apartment complexes with between 150 and 550 units each.

HANSAINVEST pursues a buy-and-sell strategy and intends to hold the properties after their purchase for at least five to seven years. The first properties are scheduled to be purchased this year. Plans do not provide for a limit on the term of the fund. DONNER & REUSCHEL Aktiengesellschaft will serve as custodian.

Building Boom: Investors Still Bullish on Apartments

From the Wall Street Journal:

After six years of rising apartment rents in U.S. cities, investors from all corners of the real-estate industry are piling into new projects in a bet the boom still has a long way to run.

Over the next three years, developers are expected to build almost 1 million apartments in the U.S., more than the nearly 900,000 constructed over the previous three, according to researcher Axiometrics Inc.

In 2014, multifamily rental construction reached 328,000 units, its highest in nearly 30 years, according to an analysis of U.S. Census data by Jed Kolko, a senior fellow at the Terner Center for Housing Innovation at the University of California, Berkeley.

The main lure for investors: rising rents. Average rents nationwide rose 4.6% in 2015, the biggest gain since before the recession, according to real-estate researcher Reis Inc. Rents have increased by more than 20% since the beginning of 2010. Most economists expect 2016 to be another strong year. The average monthly U.S. apartment rent now stands at nearly $1,180, up from about $1,125 a year ago, according to Reis.

Yep, rents are up across the US, but the Triad is still affordable by comparison. According to Real Data’s latest report, average rent in the Triad was $760 in Sep, 2015 which was up from $728 a year earlier. Same could be said for comparing development in the Triad to the rest of the country: the Triad is definitely seeing some apartments built, but not at the same rate as many of the major metro areas.

Five Triad Apartment Communities Start 2016 Under New Ownership

An article in the Triad Business Journal provides an overview of five apartment community sales in the Triad at the end of 2015:

Deerwood Crossing Apartments (Winston-Salem), now known as Twin City Apartments, is a 285-unit community that sold for $11.4 million.

Westgate Terrace Apartments (Winston-Salem), is a 42-unit community that sold for $2.53 million.

Ridgewood Apartments (Greensboro), a 14-building, 160-unit community sold for $5.4 million.

Tucker Street Apartments (Burlington), a 31 building community built in 1972 sold for $2.6 million.

Beaumont Avenue Apartments (Burlington), a 40 building community built in 1972 sold for $2.6 million.

More details about the transactions can be found here.

Secondary Markets, Like the Triad’s, Are Hot

From the May 27, 2015 Wall Street Journal we learn that secondary and tertiary cities are the new belles of the ball in the multifamily sector:

As prices for multifamily properties in big cities escalate, some investors are setting their sights on smaller markets where prices are lower and yields are higher…

According to New York-based data firm Real Capital Analytics Inc., the average national cap rate for multifamily properties for the 12 months ended in March was 4.92% for the six primary markets such as New York or Chicago; 6.41% for secondary markets such as Houston and Philadelphia and 7.09% for tertiary markets such as Birmingham, Ala. or Buffalo, N.Y…

Large investors tend to favor primary markets in part because they have a firm employment base that expands during times of economic growth, boosting demand for rental housing. But as the economic recovery broadens, job growth is expanding to smaller markets.

That trend, in turn, is making investors more comfortable with the idea of entering less popular markets. According to brokerage Marcus & Millichap, three years ago over 60% of apartment acquisition capital was going to primary markets. Today, that share has fallen below 50%. Marcus & Millichap recently brokered the sale of 30 West Apartments, a 264-unit project in Bradenton, Fla., a tertiary market, for $25 million.

After watching our neighbors to the south (Charlotte) and east (Raleigh) getting most of the dances it looks like we here in the Piedmont Triad are finally going to get our share.

The Story Behind the Sale of CityView

According to this piece on Triad Business Journal’s site, Signature Property Group’s sale of CityView to The Carroll Cos. was motivated by their need to free up capital for projects outside of the Triad:

The sale, a first for Signature in its 25 years of business, lifts constraints on cash resources, allowing the group to develop four more properties in the year ahead, said owner Frank Auman.

“The main reason we’re selling it is to fund expansion outside the Triad,” he said. “We currently have three properties under contract between Raleigh and Burlington, and we are in negotiations with a fourth in the Raleigh area. We plan to start two this fall and two next spring.”

He declined to provide further information about those plans.

The Carroll Cos motivation for the purchase seems to be deepening its presence downtown:

Carroll said the acquisition will help The Carroll Cos. take advantage of a “variety of synergies and operating efficiencies that come from owning three projects just blocks from each other in downtown.”

CityView joins Carroll’s other major downtown projects: Center Pointe, 98 luxury condominiums in a 17-story toweron North Elm Street; and Bellemeade Village, a large-scale mixed-use project planned near NewBridge Bank Park. Bellemeade Village, a $50 million project that will include a Hyatt Place hotel and 300 upscale apartments, could see site work begin “any moment,” Carroll said Wednesday.

 

Marcus & Millichap in the Triad

From the Triad Business Journal:

Calabasas, Calif.-based commercial real estate brokerage firm Marcus & Millichap recently opened an office in Greensboro and hired two local industry veterans —Richard Montana and Hal Kern — to increase sales of apartment projects across the Carolinas.

M&M (NYSE: MMI) recruited Montana and Kern, who previously worked together within the multihousing group of CB Richard Ellis‘ Triad office, to help the company capitalize on multifamily investment sales at a time when interest rates remain historically low, apartment demand remains hot, and lenders are competing for deals, M&M officials said…

Raj M. Ravi, regional manager for M&M’s North Carolina, South Carolina and southern Virginia offices, said the two will focus on investment sales for high net-worth private investor clients that typically spend between $8 million and $30 million on assets. The team also will focus on building a base of private investor clients that spend between $1 million and $8 million, he said.

Looking for a Solid B

Tru-America Multifamily, founded 18 months ago, is strategically targeting “B” properties in the western part of the US in hopes of developing a portfolio that can generate higher than average rent gains in coming years:

The company says its strategy is to buy lower-grade buildings, renovate the units and “reposition” the properties as slightly more modern and higher-end in hopes of charging higher rents. The company estimates it will be able to raise rents an average of 6.4% a year, about 1.4 percentage points higher than it expects average rents to rise in Southern California submarkets…

Like most of its previous acquisitions, TruAmerica’s newest assets in Southern California were built in the 1980s. The 2,669 units in the region are spread out in lower middle-class neighborhoods, such as San Pedro and Santa Clarita in Los Angeles County, El Cajon in San Diego and Ontario and Riverside in the Inland Empire.

TruAmerica says it plans to invest approximately $40 million in upgrades, including the installation of new cabinets, new floors and, in some locations, modern fitness centers and common areas. Those improvements will “make it a more Class-A feel,” says TruAmerica Chief Executive Robert Hart, who holds a 20% stake in the company.

Three Greensboro Apartment Communities Sold

According to an item in National Real Estate Investor three apartment communities in Greensboro have been sold:

The 109-unit Lemans at Lawndale, located at 2005 W. Cone Blvd. in Greensboro, N.C. SBV Communities acquired the Class C property for $2.7 million.

The 106-unit Lexington Commons, located at 2316 Golden Gate Dr. in Greensboro. SBV Communities purchased the Class C property for $3.4 million.

The 180-unit Fox Run, located at 301 West Vandalia Rd. in Greensboro. Richard Anderson acquired the property for $4 million.

All sales were brokered by Multi Housing Advisors’ (MHA) Charlotte, NC office.