Category Archives: Investing

From obsolete to absolutely: Old office buildings get new lease on life as multifamily buildings

Property owners of old or obsolete office buildings are turning their obsolescence blues into multifamily gold.

According to a study by Newmark Knight Frank, 8% of the nation’s office inventory is obsolete, meaning building owners need to find new ways to make money off of their spaces.

Thanks to big time demand for downtown housing and an overall housing shortage, property owners saddled with a struggling office building have been able to successfully flip their defunct office properties and turn them into multifamily developments to capitalize on the demand for multifamily housing in walkable submarkets.

According to the report, this will continue to be a nice safety net for infill office properties as renters continue to show strong preference for urban product.

Baltimore’s central business district has been a strong case study for the efficacy of office-to-residential conversions.

To help pique the interest of investors, the city of Baltimore employed tax incentives for adaptive reuse projects in the CBD where there was a glut of underperforming office buildings and a lack of housing. NKF analyzed a sample of four office buildings that underwent conversions in Baltimore’s CBD and found that all four outperformed the submarket’s average multifamily housing rental rate. On average, the properties had rents 8.19% higher than the submarket average as of Q1 this year.

It is important to note that though adaptive-reuse can be a good way to revitalize returns-on-investment for a struggling building, not all office buildings are fit for residential conversion. Floor height, column spacing and slab type must all be considered in the decision to initiate an adaptive-reuse project like this.

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Multifamily investment market is getting tougher still

The Freddie Mac Apartment Investment Market Index fell 3.4% year-over-year in the first quarter, despite strong fundamentals.

The index tracks 13 markets across the nation, aggregating employment data, permitting data, net operating income data and property price data to come up with a score that captures the investment climate in the multifamily market.

According to the index breakdown, the downturn is largely due to rising property price growth, which is pushing down returns-on-investment.

Of the 13 markets, property prices rose in 10 of them. Rising interest rates are putting additional pressure on prices and also contributing to the downward pull on the multifamily market.

The countervailing forces keeping AIMI from sustaining a larger drop has been continued strong demand and a scarcity of housing that continue to support rent growth.

“While both mortgage rates and net operating income affected AIMI this quarter, the continued growth of property prices — driven by healthy demand and overall housing shortages — proved to have the most meaningful impact,” Freddie Mac Vice President of Multifamily Research and Modeling Steve Guggenmos said in a statement.

“While AIMI’s quarterly and annual results were both slightly negative due to price appreciation, it continues to reflect the strong demand for multifamily investments and illustrates the long-term strength and stability of the multifamily market,” he added.

According to the index report, the market can expect more of the same as rising interest rates and declining deal availability add difficulty to the task of finding viable investments and increase competition for deals.

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Boston Capital gears up for $350 million of multifamily acquisitions

Boston Capital Real Estate Partners, the third largest apartment owner in the U.S., just closed the Boston Capital Income and Value U.S. Apartment Fund. The fund has enough juice to add $350 million of apartments to Boston Capital’s multifamily empire.

BCIV is a Luxembourg-based fund vehicle with a stable of investors ranging from financial institutions and insurance companies to pension funds and family offices.

The BCIV strategy is value-add all the way. BCRE is sniffing out Class-B apartments worthy of renovation in primary and secondary markets across the U.S.

BCIV is the latest iteration in a series of funds BCRE has geared for value-add acquisitions and renovations. BCRE’s appetite for value-add product is indicative of continued demand for value-add deals across the entire U.S. multifamily market. Investors have not let up on their appetite and are still showing strong preference for this type of deal. Thus, competition in the value-add market is getting tighter and tighter. Most, if not all, of the obvious value-add opportunities have already been snatched up.

These days, it takes a much more discerning investor to find the diamonds in the rough. Nevertheless, BCRE is excited to throw some fresh capital in the value-add ring.

“We are excited to close BCIV as we continue to innovate the structures and strategies of our apartment investment offerings. With support from our institutional investment partners, BCIV locates and extracts untapped value from existing multifamily properties in infill suburban ring locations in primary and secondary metropolitan areas across the U.S.,” BCRE Managing Director Mark Dunne said in a statement.

So far, the investment fund has bagged four assets in four states. One each in Dallas, Atlanta, Phoenix and Charlotte which brings the fund’s unit total to 1,330 units with more to come in the near future. According to its release, BCRE intends to add two to three more properties to the BCIV portfolio by early 2019.

“With four high-performing assets already in the fund, we plan to close out the investment phase within the next nine to 12 months and begin marketing the next fund in this series by early next year,” Dunne added.

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