| Jan. 22, 2016 shows how multifamily is currently awash in capital
ORLANDO—A trio of decision makers from some of the nation’s biggest institutional investors shared their observations on the multifamily market and strategies for the coming year in an informational session moderated by Real Capital Analytics’ founder and CEO, Bob White. The panel, “Awash in Capital: The Impact of Global Investment on the US Market,” was a highlight of the NMHC’s 2016 Apartment Strategies Outlook Conference, which attracted about 1,800 attendees here on Tuesday.
White kicked off the discussion with an overview of the biggest apartment buyers of the past year. TheBlackstone Group, not surprisingly, was at the top of the list, with over $9 billion in multifamily buys in 2015. Yet more than half of the figure can be attributed to the firm’s $5.3-billion acquisition of Stuyvesant Town in New York City, pointed out Blackstone principal Olivia John.
The fact that the Stuy Town deal was an off-market transaction was a huge boon for the company, John noted, since the landscape has been incredibly competitive. One thing she noticed as the Blackstone team was out looking for opportunities in the market, she said, was that “all of a sudden we and our competitors—Lone Star, Starwood, etc.—were all actively competing for the same deals.”
The firms were also investing in property segments outside of apartments, “but multifamily was the only one where we were going after the same deals,” John related. “That says something about the sector—we all see something there in terms of opportunities. We feel that multifamily remains a very interesting sector and, based on our competitors’ actions, I’d guess they feel the same way.”
Ethan Bing, a vice president with Starwood Capital Group, echoed that observation, adding that the flow of domestic and international capital into the sector will only increase this year. “You can still find attractive yields out there, and we’ve been able to find some good discounts to replacement costs,” he said. “There will be more deals out there, but also more competition. And for bigger deals, the buyer pool may be smaller but it doesn’t mean the competition is less fierce.”
Going into this year, John said the bigger players will certainly remain active, but Blackstone will definitely cherry pick the deals it goes after. Unlike some other players who have a set allocation to a given sector, the firm will invest in deals as it sees fit. “Having said that, we expect to continue to invest heavily in multifamily since we still see it as an interesting sector. We have, though, made an effort to increase our exposure on the coastal markets because we feel like those areas are more protected from oversupply concerns.”
AIG Global Real Estate Investment Corp.’s managing director, Jeff Daniels, also sees a highly competitive arena, be it for core properties or value add, existing assets or new development opportunities. The key to 2016, he said, “will be having the capital to put to play.”
He sees this year progressing much like 2015, in that capital availability will wane as the year goes on, so it’s better to get transactions closed early. As Daniels explained it, Fannie Mae and Freddie Mac “tapped their brakes” in the latter half of 2015, sending more business toward life companies and other capital sources. Yet those players have a limited allocation toward real estate, so when they reached their annual caps, some even tried to push deals to close in early 2016. “We feel like during the second half of the year there will be a repricing of debt,” he said. But if debt providers “do the same in 2016 as they did last year, you’re going to run into the same problem. So do your deals now.”
Those with capital certainly rule the investment arena. John related that Blackstone tends to buy wholesale and sell retail, buying portfolios and pruning them down in one-off dispositions. The firm sold about $2 billion worth of assets last year. “The people who are being most competitive as buyers are the ones who have more capital on hand,” she said. “We tend to select those buyers more often than the ones who have to leverage.”
Reputation and relationships also go a long way in getting deals done. “Can you execute? Can you close? You don’t want to engage with someone who’s going to potentially stop your deal midway through,” said Daniel. “There are a lot of things that go into relationships, business and personal.”
“There’s no substitute for having a good reputation and having the capital as a buyer,” noted Bing. “We try to be as good if not better than others in terms of timing, reputation and certainty of closing, but it’s difficult. Our track record is a big advantage in proving we do what we say we’re going to do. Sustaining our relationships goes a long way.”
Amidst the competition, panelists were split on the availability of off-market opportunities. Stuyvesant Town, said John, was unusual since those types of deals are “pretty hard to find. That was one of the last remnants of the 2009 crisis that was owned by a servicer. We were watching it and when we saw that it was ready, we tied it up within a week. But most of what you see today is going to be fully marketed.”
On the other side of that coin was Daniels, who has about 1,200 units in AIG’s current deal pipeline between single-assets and small portfolios. “For the first time in a very long time we’re seeing a lot of off market transactions,” he said, adding that as the marketplace gets more crowded and the selling process gets more complicated, “you’ll probably see more. Sellers will see they may leave some money at the table, but they’ll save themselves two months of negotiations.”
Check back in this afternoon to hear these pros’ thoughts on financing strategy and outlook for the year…
This article was originally published on http://www.globest.com/
