• Efficiency:  Due to their varied locations managing and maintaining 8 properties after work can begin to be a rat race.
• Financing:  Banking rules only permit each lender to have 10 residential loans at any one time.  Under certain market conditions banks sometimes lower the 10 residential property loan maximum to 4. This will limit Jerry’s efforts to acquire new properties unless he elects an “all cash” acquisition strategy.  If it takes a high (or even 100%) amount of cash to acquire an asset you had better be getting a much higher percentage return on your investment or your yield percentages will drop.
• Non-scalability:  Jerry is just about at the limits of what he can take care of after work in varied locations.  If he wants to grow his portfolio and potential returns he needs to adopt a different strategy.

 Its a great time to start or expand your multifamily investments.  Contact Rick Bean of Rose City Commercial Real Estate to learn more about Portland multifamily and other good investments at: 503.577.1034, or rick@rosecitycre.com.

Options

 You should have seen the “lights go on” for Jerry when I told him that his plan had great elements but he was placing his energies in the wrong  type of property.  There is no limit to the number of commercial loans you can have at one time.  Banks don’t say:  “Sorry, Sam Zell…no more apartments for you, you have more than 10 commercial loans.”  Residential investment multifamily is 2-4 units.  Commercial investment multifamily is 5 and up.

It would take time, but my counsel to Jerry is to sell off his single family properties, aggregate his equity and purchase a 20-30 unit apartment complex.  He can give one of his tenants a break on rent to be his on site “eyes and ears” and collect rents.  He can elect to do all the maintenance himself, which will increase his monthly cashflow.  If is tired of management and maintenance duties he can get help.  His total cash flow will be slightly lower intitally…and much higher in a couple of years.

An additional option would be for Jerry to by a property with need of some “lipstick” and use his crews to help turn it around.  After stabilizing higher rents it could be sold for a substantial profit, and by using a 1031 exchange the equity could be turned into a 40 to 60 unit property…complete with M+MBO.  (Maintenance and management by others).

Multifamily scalability

Costco is based on the principle that makes apartments a great investment: Do you want to pay $43.75+ deposit for 35 single bottles of water…or $4.99 + deposit for a case of 35?  Apartments are by nature a highly scalable investment.  I once worked as an intern for a man who was truly self made.  He started many years ago by buying a triplex.  Since then he has bought multiple complexes that have over 1,000 tenants each.  The best part of this story?  He still hasn’t paid the taxes for the gain on the 1976 triplex sale due to the advantages of 1031 exchanges…but that’s a discussion for another post.

How should “Jerry the plumber” invest?

Jerry is a 50 year old who owns a successful plumbing business.  In addition to his own home Jerry has 8 other single family residences that are rentals.  He currently manages and maintains all the properties himself.  They have significant equity in them.

How should “Barry the bond holder” invest?

Barry is a retired businessman who has well over a million in bonds that pay anywhere from 2-4% per year.  He’s conservative, (he’s into bonds after all!) but he’s also concerned about inflation.  Monthly cashflow is very important as that is a major source of income.

How should “Jacob, the mid-30′s dynamo” invest?

Jacob is young enough that he doesn’t even think about cashflow…his focus is on the big chunks of equity that come upon sale so he can exchange into a larger property.  His current goal is to own as many doors and expand his holdings as fast as possible, even if that means a shorter hold period.  He doesn’t see himself as a risktaker…he times markets and buys at the bottom, although he does use higher leverage than most apartment guys.

How should “Dylan the daytrader” invest?

Dylan is a highly successful daytrader who understands the stockmarket and has made a killing in it.  He’s concerned that the volatility index of the market is increasing and that the European (and local) debt problems may reduce values.  He wants to put $1 million into multifamily, but he doesn’t know the first thing about asset management of real estate.

While these names are obviously made up, the profiles are similar to actual savvy investors I’ve met.  Please check back to follow the series as we explore the challenges and possible solutions for each of these scenarios.  If you want to me to assist you in developing a custom solution crafted to your specific economic circumstances, contact me, Rick Bean, at: 503.577.1034 or rick@rosecitycre.com.

Next week I’ll be testifying as an expert witness in a property tax appeal case for an 120+ unit multifamily asset in Salem, OR.  Part of my research is to interview the on-site property manager.  I was very impressed with how well she knew her area, the asset she managed, historical vacancy rates, concession rates…she was a pro.  Some people have an innate talent for property management and she is clearly one of them.  Others may need some top notch training to fulfill their potential.  I am an unabashed fan of Grace Hill Training for multifamily pros.  They offer low and no cost programs that your management staff will benefit from.  Multifamily management is not easy.  One asset owner I talked to thought training was over rated.  I responded:  “You’ve got a highly motivated  person willing to put in long hours on your behalf to help you optimize the profits on a $10 million dollar asset.  Give them tools so they have them the greatest chance to create positive outcomes on your behalf.”

The next GracHill Offering has that FREE pricepoint that value conscious owners like:

GRACE HILL & MproTV PRESENT LET’S TALK TRAINING - In their second episode of Let’s Talk Training, you’ll discover new and innovative ways to keep your maintenance teams trained and motivated by using new methods of learning.  They will discuss challenges and benefits of several methods:

• Online training
• Hands on training
• On the job training
• Training facilities
• Videos/podcasts
• Outsourcing

If you are an owner, trainer or supervisor, join them on Wednesday, October 12, 2011 at 2:00 PM ET for Maintenance Team Training and Motivation.  Click here to reserve your spot now.  Let’s Talk Training is always free of charge, so it will fit nicely into your training budget!

When you think of top notch multifamily training, think of Grace Hill.  To optimize your multifamily portfolio contact Rick Bean of Rose City Commercial Real Estate at: 503.577.1034 or rick@rosecitycre.com

Yesterday, August 8, 2011 it took much longer (all day) for the Dow Jones Industrial Average to drop 635 points, losing 5.6% of it’s value. Again that’s roughly $1,000,000,000,000…a trillion bucks.  Today investors bought back in and the market rebounded, regaining all but a few hundred billion dollars of the past day’s losses. Ouch!

It’s almost like we have our 401K’s and our stock portfolios being tended by a blindfolded drunk careening around.  Hang on, we might make or lose a ton of money.  Now on the more conservative side we have our bond holders.  Yesterday’s close at 2.182% for 10-year Treasuries is scarier in a way than the NYSE: At least with stocks you could make some money. Take a million dollars worth of bonds, pay taxes on the 2% profit and lose 2.7% due to inflation and you’re guaranteed a loss.  Nobody won the Warren Buffet Excellence in Investing Award by only losing .8% a year.

I am not trivializing the large losses of the one group, nor the guaranteed loses of the other.  It’s just that I believe investing in commercial real estate has an answer for each of them.  Over the next few posts I will detail varied multifamily acquisition strategies.  The next in the series is: Multifamily Acquisition Strategies for the Conservative Investor.

The Hypersupply cycle in investing is like Fall.  In Fall trees slow their growth, flowers fade and the days turn cooler.  Some flowers open and close and follow the sun each day.  That’s a luxury that condo converters and large project builders don’t have in investment real estate.  Due to the barriers to entry and time it takes to permit and build apartments we can’t just shut them down.   At the beginning of Hypersupply it sometimes looks like the economy is just taking a breather before getting a second wind.  While absorption rates are a key the fundamentals of a Hypersupply cycle market include:

• Increasing vacancy rates
• Moderate to high new construction
• Low to negative absorption
• Moderate to low employment growth
• Medium to low rental growth
• Per unit prices tend to peak at the transition of Expansion into Hypersupply
• Increasing value attributed to all cash offers
• Tight lending standards

The strategies that worked great in Recovery and well in Expansion are not as plentiful in Hypersupply.  Buy and hold long term is viable…but it is important to use proper financing to avoid a Debt Service Coverage issue later on in the cycle.  Flipping is very perilous with large numbers of new units coming on line, absorption challenges, stagnant rent growth tend to lower values.  Condo conversions already under way may continue, but new projects are often delayed or cancelled.

There are some good deals to be made during Hypersupply, but cash becomes more important.  Lenders tend to raise DSCRs, lower their LTV’s, and Non Recourse Loans become rare or non-existent.  Lenders change their underwriting from focusing on the deal (is this going to work and produce the profits the investors had hoped for?) to focusing on the dealmaker. (How solvent is the borrower; does he/she have the resources to weather the storm?)

The other analogy I liken Hypersupply to is coming over the top of the roller coaster.  There is a slowing of upward motion then a brief period where things almost stop then….

Next up: The fourth and final phase of the investment cycle: Recession…or “the race to the bottom.”

More posts in our Timing Your Multifamily Investment Series:

• Multifamily Investment Basics-Part 1 of a series
• When To Make Multifamily Investments-Recovery-Part 2 of a series
• When To Make Multifamily Investments-Expansion-Part 3 of a series
• When To Make Multifamily Investments-Recession-Part 5 of a series

Just as in nature where Fall is followed by Winter which is in turn followed by Spring, multifamily investing follows a cycle.  And cities have an investing climate, too.  Las Vegas tends to be real hot or real cold.  The same with Phoenix. A great deal of institutional money is being pumped into those two cities.  The amount of money to be made and risked is much greater than in more moderate investment climates like Portland and Seattle.

RECOVERY

Recovery is to Investing what Spring is to Nature.  They are both about great potential being born.  There’s no guarantee that your garden will grow…but it has the best chance if planted at the proper time.  It’s a great time to invest too.  Many investors sit on the sidelines during the Recovery phase to make sure that things have really hit bottom.  As a result they buy during the Expansion phase and don’t reap all of the rewards that are available for “trigger pullers.”  The Recovery Cycle is characterized by:

• Decreasing Vacancy Rates
• Low build rates
• Moderate absorption
• Low to moderate employment growth
• Low to negative rental rate growth
• LOW prices relative to potential upside

A broad spectrum of investment strategies are viable during Recovery. “Buy and Hold”, Refurbish, Flip, Repurpose, Build and “Convert” all have their place at this time.  Unlike Nature, the Recovery Cycle is not set in the time it will take to move into the next phase, Expansion.  But just as we know the rains of Spring will yield eventually to the sunshine of Summer, so shall Recovery turn into expansion.

NEXT POST: We’ll cover the attributes of the Expansion Phase of the investment cycle.

More posts in our Timing Your Multifamily Investment Series:

• Multifamily Investment Basics-Part 1 of a series
• When To Make Multifamily Investments-Expansion-Part 3 of a series
• When To Make Multifamily Investments-Hypersupply-Part 4 of a series
• When To Make Multifamily Investments-Recession-Part 5 of a series

I really liked this article from IRA Advantage…the concepts David Moore discusses here are also useful for acquiring Oregon Multifamily properties.  This can be accomplished as an individual or as a group.

By David Moore, IRA Advantage

Well, this month the IRA of the month is actually the 401k of the month…  A business owner wanted to diversify his retirement account’s holdings by adding real estate.  He was interested in using a portion of his 401k account to make the investment.

Now you can use your 401K, stocks, bonds, and the Seller’s favorite: cash,  to acquire Oregon multifamily properties.  Contact us for additional information regarding returns and specific opportunities at: 503.577.1034 or rick@rosecitycre.com.

The investor found a parcel of property near the beach in Mexico that he believed would make a good investment.  The investor is confident in the property’s future value and wanted to make the investment.

A new LLC was formed to acquire and own the property.  The 401k was modified to allow self-direction and then it acquired shares of the new LLC.  The LLC then established a business checking account and the shares of the LLC were purchased by the 401k which funded the checking account.

The LLC then made the investment in the property which is held in trust by a qualifying bank and will hold it until the desired return has been achieved or the property is taken as a distribution in the future.

This transaction is yet another example of the opportunities made available with a self-directed retirement account.  Call us today to explore the opportunities available to you. 800.475.1031

The Oregon multifamily market is heating up faster than the weather! Contact us today at 503.577.1034 or rick@rosecitycre.com.

This is an article I wrote at the request of a small investor who asked that I lay out a simple framework of the four engines of real estate wealth building and how residential and commercial investment strategies vary.  

When investors buy any commercial real estate they are acquiring a revenue stream.  Admittedly there are a few signature buildings that are so iconic that they are a ”pride of ownership” acquisition, but most properties are valued solely for their future economic potential.  I tell investors that its better to admire the revenue generated more than the asset itself.

There are four primary ways in which wealth building occurs

1. Cash Flow

is the sum of:  Cash In - Cash Out.  The primary source of inflow cash is rent.  Pet rent, late fees, laundry and owner contributions are also part of the cash in stream.  Cash Outflows include taxes, expenses and distributions to owners.

Rose City Commercial Real Estate is a resource for investors ready to move into this hot market…or those that just want to learn more about real estate investing.  Contact us at 503.577.1034 or rick@rosecitycre.com.

Owner types vary widely on the importance they place on distributions:

• Residential Multifamily properties (2 to 4 units) and smaller Commercial Multifamily properties cast off little cash.  Their owners tend to focus more on equity gained at the time of disposition.
• Investors of larger properties often use cash flows (distributions) as a primary source of spendable income.  They certainly expect gains at sale, but they often will use that gain to step up in basis to acquire a larger asset in the hope of increasing the monthly cash-flow.
• The bane of all investors is the much dreaded Cash Call.  When cash out ‹ cash in to the extent that operations are impacted, the property owner(s) are forced to add cash to keep expenses current.  Because of their focus on maintaining regular, dependable distributions, the owners of larger properties tend to have lower LTV loans.  Instead of holding assets with 20% as equity and 80% debt…they put down 30% or even more. This doesn’t eliminate cash calls, but it does make operations inherently more stable, reducing the likelihood of requiring additional cash.

2. Appreciation

is Future Disposition Price - Original Acquisition Price.   A 53 unit complex that is purchased for $3.2 million is 2007 appreciates $700,000 if it is sold for $3.9 million several years down the road.

• Appreciation gains can occur from (external) market forces such as a downward trend in Cap rates, or from increases in rent relative to expenses due to high demand.
• Gains can also be “forced” by internal forces.  This occurs when we reposition a property.  Renters will pay more for upscale amenities and newer looking accommodations.  Success requires having the amortized costs of improvements be exceeded by the increased rents.  In some cases we merely seek to raise the rents on the existing renters; other times we are using the upgrades to attract a new tenant profile.  The strategy of turning a C+ asset into a B or B- is pone of the most lucrative plays in real estate.

3. Loan Paydown

is determined by subtracting the initial loan amount from the remaining loan balance at any given time.  Suppose a $3,200,000 property is acquired with a roughly 65% LTV loan at 6% with a 30-year amortization.  Day one the beginning loan balance would be $2,000,000.  42 months later (3-1/2 years) the loan balance would be $1,909,649.  The loan paydown amounts to $90,351 for that period.

4. Tax Shelters and Tax Avoidance Benefits

The final benefit to investors is the tax sheltering of income.  Cost Recovery (Depreciation) is the primary example.  Industrial and retail properties are depreciated on a 40-year basis; housing is depreciated using 27.5-years.   Note: Land is not depreciable.  Using our previous example of a $3,200,000 community, let’s assume that land was 25% of the value, leaving a deprecable amount of $2,400,000 to be depreciated over 27.5 years, or $87,27.73 per year.  That will act as a tax deduction to reduce profits by that amount for tax basis purposes.

A more rapid depreciation methodology is provided by Cost Segmentation, or familiarly, Cost Seg.  This is performed based on findings of a cost engineer during their on-site inspection and review of the property. There is great acceptance of this approach by the IRS, but it is not fully understood by investors and many Tax Accountants.  Cost Seg. on Assets under $1 Million is not always cost effective due to the fixed costs of the on-site inspection.  Savings on multimillion dollar properties are substantial, and can change a 1.1 DSCR property into a 1.25. That means that Cost Seg utilization can be the difference in some loans being approved!

Duties of Professional Investment Brokers

It is incumbent on the Real Estate Professional assisting a client with a multifamilty acquisition to have an understanding of that client’s risk profile, investment horizon plus target cash flow and appreciation rates.  It is also beneficial to have an awareness of how important their client deems tax shelter options.

Almost every multifamily market saw strong leasing, rising demand and falling vacancies in the third quarter as the nation’s apartment market continued a solid 2010 rally. As of now, apartments should continue to surge over the next five years, with a growing supply of renters and very little new product in the planning pipeline.

Granted, vacancies remain above historical averages and the level of concessions to lure renters is still uncomfortably high for landlords in many markets. However, “of all the

Perhaps the most important factoid revealed in this article:  in 2009 the national aborption rate was -60,000 units.  To date in 2010 absorption is +140,000…and no signs of massive deliveries of new units.   Invest in a rising star by contacing us at 503.577.1034 or rick@rosecitycre.com.

property types, people are feeling the apartment market has clearly turned a corner,” said CoStar Global Strategist Michael Cohen, who presented the fourth and last in the company’s State of the Commercial Real Estate Industry series for the third quarter, along with Jay Spivey, director of analytics, and Kevin White, real estate strategist. “Improvements in the U.S. economy overall will favor the apartment market.”  Here are a few salient facts about national multifamily leasing fundamentals delivered by the CoStar team this week during the Third-Quarter 2010 Multifamily Review and Outlook:

* The national vacancy rate compiled from the 54 largest markets tracked by CoStar declined for the third straight quarter in 2010, falling 20 basis points to 7.7%. The national rate was a record 8.4% at the end of 2009, rising 130 basis points over the course of last year.

* The third quarter saw positive demand of around 47,000 additional units. Year to date, renters have absorbed about 140,000 units. In 2009, demand was a negative 60,000 units.

* So far in 2010, 20 metros have recouped their total demand for apartments lost due to overbuilding and other factors during the real estate downturn and recession. There’s a wide disparity across the country in demand growth. However, metros grew an average of 1.3% in the first nine months of 2010. Four of the five markets where demand is rising the fastest are Sun Belt metros, including Charlotte, NC, which saw the strongest growth at 3.5%, followed by Raleigh-Durham, NC; Phoenix and Dallas/Ft. Worth. Richmond, VA, also saw strong demand, mostly as a result of realignment of military personnel.

In terms of absolute growth, Dallas/Fort Worth blew away all other metros with fully 10% of the total positive year-to-date demand across the 54 largest markets. New York came in second place with 11,200 units of demand followed by Washington, D.C. with 8,300 units. The average metro saw vacancy fall about 76 basis points over the past six months, with Charlotte, Raleigh, Nashville and Dallas-Fort Worth seeing the sharpest drops.

So why such marked improvement in apartment fundamentals in light of less-than-stellar growth in the broader economy? A number of factors are likely contributing to this reversal of fortune in apartments, CoStar said.

New Supply: Slim to None. By the end of 2010, CoStar expects that apartment developers will have delivered about 54,000 new units — slightly less than half of 2009 levels. The miniscule increase of about 0.4% in inventory this year is just half the average annual pre-recession level of 2003-2008. Next year will be even slimmer pickings: CoStar forecasts a record-shattering low in deliveries totaling only about 0.2% of inventory.
Waning Homeownership. The percentage of Americans owning homes has dropped to an 11-year low — though it’s still well above historic rates, which ramped up in the mid- to late ‘ 90s in a strong economy and baby boomers occupying apartment space. Since 2004, declines in home ownership have moved a net total of more than 4 million people into the rental market.

Echo Boomers Are Finally Getting Their Own Crib. Many of these new renters are people ages 20 to 34, the prime demographic for apartments. About 3.6 million people have entered that age group since 2005.

Re-Employed Younger Folks. While echo boomers suffered disproportionate job losses during the Great Recession, Bureau of Labor Statistics household survey data shows they are now getting the lion’s share of net new jobs as the economy recovers.

The news is not all good. Many markets are still seeing high levels of free rent and other concessions, a challenge for landlords hoping to boost effective rents and NOIs. As of third quarter, average concessions as a percentage of face or asking rents was 5%. Phoenix ranked at the top with 12% of concessions as a percentage of asking rents, followed by Atlanta and Les Vegas at around 11%. In all, 15 metros among the top 54 are still above their long-term average for concessions.

On balance, however, landlords are starting to gain some pricing power in effective rents, with a few markets reporting gains in asking rents as well.

Over the next few years, the forecast is quite bright. CoStar forecasts supply additions through 2015 at a level less than half the rate of deliveries historically going back to 1982. Demand growth will trail the historical rate of growth by only 40 basis points.

“We have a favorable balance between demand growth and supply growth through 2015,” Cohen said. “By end of this year, vacancies in all but a couple of markets will be lower than they began the year.”

National vacancies are expected to fall by more than 2 percentage points from their historic 2009 high, ending at about 6% in 2015.

Multifamily sales are showing similar, but far from stellar improvement. While the overall investment market remains soft and weighted toward distressed properties, certain segments are performing and investor confidence and optimism are returning to the market, Spivey said. Sales in Phoenix, Long Island, Atlanta, Columbus, OH; Sacramento, Raleigh-Durham, South Florida and Orlando are above long-term averages.

But most markets are still below historical averages, with distressed transactions — REOs and foreclosures — making up a high percentage of total transaction volume.

An interesting exception is Phoenix, which has seen a better balance of distressed vs. non-distressed property trades. Despite being a housing-bust market, capital for non-distressed deals is flowing into Phoenix — in stark contrast with Atlanta, where most properties trading hands are distressed.

Investors appear most interested in newer properties less than 10 years old. Other positive signs for strengthening liquidity include a shorter average length of time on the market, fewer unsold properties withdrawn from the market, and a narrowing of the gap between asking and selling prices.

Real estate investment trusts are the most active buyers — in fact they’re the only net buyers in the market at present. Institutions, owner-users and private equity investors are all net sellers. REITs are buying the best large assets in attractive markets, and they’re generally willing to pay a decent price due to their low cost of capital and the diminishing supply of new apartment product.

In recognition of the latter, some apartment REITs, including AvalonBay Communities, are starting to restart their development programs, though most of this supply is probably a few years away from delivery.

“We’re beginning to hear a lot more noise about new supply, particularly from the REITs with their capital market access. They’re beginning to talk about moving ahead on projects,” Cohen said. “Other types of investors would like to move, given that fundamentals are beginning to make construction a little more palatable. However, development capital remains tough to access for most non-REITs, making it difficult sledding for early movers.

Some of the emerging development is legacy projects and land planned for and acquired in the last cycle and now being dusted off as demand metrics improve. That said, analysts will closely monitor apartment permits and starts, Cohen said.

In any case, REITs are definitely in the hunt for apartment product. Overall capitalization rates have declined for several quarters, with larger sales of over $20 million seeing the largest cap rate compression and distressed deals seeing higher cap rates in the bifurcated market.

“Many REIT buyers at sub-5% cap rates are banking on some real rent growth that will flow nicely into NOI,” Cohen said.

Apartments have seen the biggest increase in pricing in the CoStar Commercial Repeat Sales Index, which uses a methodology similar to the Case Shiller Index in the residential market. The U.S. multifamily index rose the highest within the four major CRE types in the CoStar Commercial Repeat Sales Index, with a positive 8.98% increase in the third quarter. The office index increased 6.08%, followed by the retail index at 5.56%.

The top 10 multifamily markets saw a larger run up in pricing during the boom and a smaller decline during the downturn. Of all the 30 sub-indices tracked by CoStar, the top 10 multifamily metros is the best performing, with the highest return over the last 10 years.

Though Some REITs Are Cautiously Re-Entering the Development Arena, Supply/Demand Balance Bodes Well for Apts. Through 2015
by Andy Drummer November 3, 2010

By Mark Heschmeyer (As seen on CoStar.com)

Whether you’re looking to invest in Portland multifamily assets, Vancouver distressed properties, or Salem Industrial land…this CoStar interview with key players shows how the pros are looking at this market. I’m going to serialize it…its too good to miss. To work with an investment pro contact me at: Rick@rosecitycre.com.

CoStar sampled a number of commercial real estate executives asking them what strategies they found to be the best in pursuing distressed deals. In general, investors almost universally agree that a distress opportunity must have clear value and make sense for the buyer’s specific investment goal; the more uncertainty an opportunity presented, the less sense it made. Beyond that, there was only one consistent answer:

“There are as many strategies as there are investors,” said David W. Popp, senior vice president, Transwestern in Bethesda, MD. “Just as each investor may have their own distressed asset strategy, each property or portfolio must be considered independently on their own merits.”

“We don’t approach any given assignment with a preconceived bias in terms of quick flip, stabilize and hold, discount rate to achieve occupancy, etc,” Popp said. “Achieving the specific goals and objectives specified by our client is paramount and these may change based on the characteristics of the property, loan terms, strength of mortgagor, etc.”

Jeffrey Rogers, president and chief operating officer of Integra Realty Resources in New York concurred, saying no clear-cut strategy has emerged as the best practice. It all depends on what type of investor you are.

“The type of investor you are largely depends on the type of investment capital you have to deploy,” Rogers said. “For example, if you are running an investment fund raised with institutional money, which requires a certain return (typically in the double digits now) that needs to be achieved before the investor can share in the profits, you need to look for situations which offer adequate yields. In such a situation, the stronger markets like New York and Washington, DC, are not as attractive because of the relatively higher prices and lower yields.”

“If you are a REIT paying a dividend of 4%-6%, the stronger markets appeal to you because you can afford to focus on quality and take less risk in a secondary market,” Rogers continued. “The big REITs may earn a lower yield, but the return to investors is a lot lower. So, it really depends on where you get your investment capital and on your time horizon.”

There was no specific market or property or asset either that jumped out as having any particular advantage either.

“If investors want stability and a relatively safe investment, they would tend to prefer multifamily in 24-hour markets such as New York City,” Rogers said. “If the investors are willing to take on greater risk for a higher yield, they might prefer retail in this current market. The vacancy rate in retail is generally higher than the vacancy rate in multifamily in this market, but the upside is greater as well.”

Or an investor may not even prefer property, Rogers added.

“Properties acquired between 2003 and 2007 with significant leverage are underwater and no longer have equity. Thus, the target is the debt not the property. The goal is to buy the debt at discount. Depending upon your ultimate strategy, once you own the note, you can negotiate with the owner or you can move to foreclose to gain control of the property.”

Want the whole article? Come back for more…or go to By Mark Heschmeyer (As seen on CoStar.com)