A number of factors continue to make it difficult to underwrite with certainty and find value in the current market.
The Fed kept rates flat this month, based on the notion that inflation has settled in the 2.4% to 2.9% range. However, the long end of the yield curve remains elevated at 5.%, and suggests that the market is expecting inflation to remain persistent in the short to medium term.
The 10-year treasury rate is an important input for multifamily pricing when purchasing with long term fixed rate debt, and with the cost of debt remaining elevated and sellers not (yet?) seeming willing to lower their pricing expectations to meet this higher cost of capital, many buyers and sellers remain far apart in their valuations.
Rent trade-outs are a mixed bag at the moment. In many strong markets, 2024 was a year of negative rent trade outs, as new supply put downward pressure on rents across the board.
However, we are starting to see some reprieve, as excess supply is being absorbed and as population growth increases demand in certain markets. This is evident by a number of positive rent trades being seen within our portfolio.
We are not yet ready to forecast rent growth in the short term, but perhaps we are starting to see a changing rental market in certain pockets.
And finally expenses remain a challenge. Inflation has certainly put pressure on many expense line items and perhaps we haven’t seen the end of this.
However some fixed expenses have the potential to show meaningful reductions. We recently received a renewal quote for insurance at one of our properties. The rate reduced by 28% compared to last year, representing a $125k savings..
On this particular property, we were paying around $1200 per door at acquisition. We received quotes as high as $2800 per door at the peak of the insurance market hard cycle, and we will now be paying $1350 per door.Reductions in insurance cost can have a meaningful impact on NOI and hence the price that can be paid for a property. So if reductions like this one become common place across the market, that will be a key piece of underwriting information that may mean the difference between a deal making sense and not.
To learn more about how we can help you to generate superior investment results through professionally managed Real Estate investments, click here to register for our investor club.
Underwriting in an Uncertain World
A number of factors continue to make it difficult to underwrite with certainty and find value in the current market.
The Fed kept rates flat this month, based on the notion that inflation has settled in the 2.4% to 2.9% range. However, the long end of the yield curve remains elevated at 5.%, and suggests that the market is expecting inflation to remain persistent in the short to medium term.
The 10-year treasury rate is an important input for multifamily pricing when purchasing with long term fixed rate debt, and with the cost of debt remaining elevated and sellers not (yet?) seeming willing to lower their pricing expectations to meet this higher cost of capital, many buyers and sellers remain far apart in their valuations.
Rent trade-outs are a mixed bag at the moment. In many strong markets, 2024 was a year of negative rent trade outs, as new supply put downward pressure on rents across the board.
However, we are starting to see some reprieve, as excess supply is being absorbed and as population growth increases demand in certain markets. This is evident by a number of positive rent trades being seen within our portfolio.
We are not yet ready to forecast rent growth in the short term, but perhaps we are starting to see a changing rental market in certain pockets.
And finally expenses remain a challenge. Inflation has certainly put pressure on many expense line items and perhaps we haven’t seen the end of this.
However some fixed expenses have the potential to show meaningful reductions. We recently received a renewal quote for insurance at one of our properties. The rate reduced by 28% compared to last year, representing a $125k savings..
On this particular property, we were paying around $1200 per door at acquisition. We received quotes as high as $2800 per door at the peak of the insurance market hard cycle, and we will now be paying $1350 per door.Reductions in insurance cost can have a meaningful impact on NOI and hence the price that can be paid for a property. So if reductions like this one become common place across the market, that will be a key piece of underwriting information that may mean the difference between a deal making sense and not.
To learn more about how we can help you to generate superior investment results through professionally managed Real Estate investments, click here to register for our investor club.