We all see the email flyers, distress asset, short sale and the pre-auction price sale (favorite of mine). So has the economy really hammered the multifamily industry so hard, so fast?
A deeper look at what is called "distressed" in many cases gives one a glimpse into what I call total disregard of the basic fundamentals of real estate.
Fundamental number one, location, location, location. Hey, things have been built where they don't belong. Check the area out. How is access? Is it near the renter trappings - shopping, entertainment, etc? I am seeing a lot of stuff on the market either smothered in competition or in the bad part of town – remember years ago the big guys ran to high barrier of entry markets? They had a reason!
Fundamental number two, all real estate is local. Real estate and especially apartments carry a certain local buzz to them – it is either a good place, hip place, you don't want to live there place or something in between. Get the buzz if you're buying or create the buzz if you're going to reposition. Great example: Urbane Properties, a master of repositioning apartments into hip cool places to live – they are the kings of buzz.
Fundamental number three, pricing always sells. Is the product priced out of the market? Many assets will never hit the projected price point, be it rental or for-sale; want to buy a condo in Miami?
Where did the assault begin on the multifamily market? Well, as all real estate is local – it is a different story in each market. Florida, I point to condo conversions, want to buy an apartment complex at a 2-cap? Many did, as they looked at the retail price point. Texas, certain markets had too much product built in them; A-product stated competing with B-product. Then some markets had the uncontrollable force of massive job layoffs – got to move back in with Mom and Dad! So, every market has a story – many yet to be written.
So are many of these assets now touted as "distressed" actually victims of the economy? Or, are they just built or purchased with all the basic fundamentals of real estate thrown out the window?