Why Multifamily
Multifamily
Multi family is a counter-cyclical industry that does well, even in a bad economy. Unlike single-family homes, the demand for apartment units has reached record-levels. Buyers, who three years ago could secure a mortgage to buy their own house, are now challenged to qualify for home ownership loans.
Why Multifamily
- The apartment market, as an investment vehicle, offers investors greater returns with less risk than other investments.
- The apartment market is less reliant on business cycles for occupancy and will continue to benefit from demographic trends and population growth.
- Multi family ownership is more management intensive than some other asset types. This distinction ensures “value added” opportunities.
- Apartment demand is driven by an expanding and transitional population, and, at present, by record numbers of foreclosures.
Apartments Are the
back-up housing choice as ?
- Young people move out of their parents’ homes
- Students graduate from college
- Immigrants come to the U.S.
- Workers staffing new factories move into nearby neighborhoods
- Financial challenges create the need for temporary and affordable housing
Why Invest?
Multifamily properties historically maintain a structurally lower vacancy rate than other product types and generally exhibit greater resiliency in holding their values during market downturns. Demand can still increase for apartments in economic downturns when homeowners turn to renting to preserve capital and renters cannot afford to buy. Lenders offer superior terms due to investor familiarity with this asset type, and there is a wider availability of financing options.
The relatively high turn-over of apartment units (vs. office buildings, commercial space and single family homes) allows us to continually improve the assets as tenants move, increasing rents and therefore increasing value.
OCI qualifies for all loans so no guarantees are required of our investors. Because we use limited liability companies to structure our deals, investor liability is limited to the amount of their investment and their outside assets are protected.
The relatively high turn-over of apartment units (vs. office buildings, commercial space and single family homes) allows us to continually improve the assets as tenants move, increasing rents and therefore increasing value.
We have observed that Wealth Management firms are currently moving many of their investors towards multifamily investment opportunities like those offered by OCI. The earning potential in the commercial real estate market is climbing in key states like Texas, North and South Carolinas, Phoenix, Chicago and California, so there is an increased amount of interest in multifamily projects, according to Nreionline.com.
Private Equity firms and individuals are seeing high returns in the multi-family sector due to the simple need and demand for housing in larger markets and highly populated areas. The investment opportunities to build, develop, acquire and / or renovate multifamily complexes are producing attractive investment gains.
Acquisition Criteria
MARKET SEGMENTS
- Age: The 18 to 34-year-old market segment comprises 22% of the U.S. population
- Income: Renters who earn $35,000 and less annually
- The retiring Baby Boomers are scaling down and are enjoying carefree multifamily community living.
PROPERTY CRITERIA
- Multifamily residential apartments
- Roofs with pitched construction
- Minimum Occupancy 80% with the exception of properties that require renovation, providing properties are well located and present value enhancement opportunities
TARGET VALUES
- Size and Price: 100+ units in the $5MM – $15MM range
- Returns: 15-20% Cash on Cash, minimum Debt Service Coverage ratio of 1.5
- Type: C- to B+ properties located in C- to A areas
- Location: Emerging market areas with indicators for strong near and long-term economic growth
Emerging Markets
EMERGING MARKETS ARE CHARACTERIZED BY
- People migrating in, rather than leaving a geographic area
- Jobs being created rather than lost
- Rents and property values quickly rising
- Strong, local government leadership dedicated to attracting jobs
- Markets beginning to absorb oversupply
- Job Growth Report (local & regional)
- Population Growth
- Path of Progress Reports
- Local Economic Reports & Trends
- Chamber of Commerce Reports
Markets Cycles
JOBS BRING MARKETS BACK TO LIFE
Acquisition Practices
Investment Discipline
Path of Progress
A Path of Progress is where the greatest amount of building and development is currently occurring, or soon will be. What is now Orange County was a Path of Progress between Los Angeles and San Diego?
A Path of Progress is where:
- Growth engulfs properties and drives high and quick appreciation
- The majority of new construction is occurring
- National tenants are moving into the neighborhood
Investing in Paths of Progress yields the greatest returns in the shortest period of time.
Value Plays
VALUE PLAYS SOLVE PROBLEMS CAUSED BY
- Poor supervision of management companies
- Mismanagement caused by owner self-management
- Deferred maintenance
- High vacancies
- Below market rents
- Increasing rents to current market pricing. Sometimes we purchase properties that are 10% or more under current market pricing. This gives us the opportunity to increase rents and immediately increase the value of the property.
- Improve curb appeal by improving landscaping, adding carports, etc. Tenants will pay more when a property is in better condition or has carports or security gates.
- Implement a water and sewage bill-back system to charge to the tenant for actual usage. In a lot of cases, the apartment owner pays for all of the water. If we bill back the tenant it helps to offset those expenses and increase the cash flow, and tenants get more frugal with their usage, decreasing overall operation expenses.
- Add a coin laundry facility to the complex (may seem minor, but the income adds up quickly).
- Annual rent growth increases by 3-4% per year.