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Watch Now: Dead Deal Club – Reasons REEP Says, “No” to Multifamily Investment Opportunities

Watch Now: Dead Deal Club – Reasons REEP Says, “No” to Multifamily Investment Opportunities

If you missed our recent REEP Huddle focusing on the Dead Deal Club – Reasons REEP Says, “No” to Multifamily Investment Opportunities, that’s okay. We’ve got you covered!

Here are some key highlights from the lively discussion led by REEP Equity’s, Arlene Garza, Founder, and Victoria Garza-Fraser, Acquisitions and Capital Events Manager.

  • Market Trends: Despite a 60%-70% decrease in multifamily inventory for sale from the peak of 2021/2022, there has been a notable uptick in transaction volume compared to 2023. The market is witnessing heightened purchasing competition, with 15 to 20 potential buyers per deal (compared to the previous average of 3 to 5), emphasizing the market’s resilience and the pent-up demand.
  • REEP’s Activity: Since the beginning of the year, the REEP Acquisition team has reviewed 103 investment opportunities, underwritten 85 deals, participated in 28 property tours, and ultimately greenlighted 3 investments.
  • Selective Approach: While REEP would ideally like to move forward with as many investment opportunities as possible, a stringent set of criteria guides their decision-making process, ensuring only the best opportunities for our investors. Factors leading to passing on deals include flood zone designation,  lender sizing, pricing,, specific investment criteria, location considerations, property characteristics, and the Seller taking the property off of the market.
  • Risk Analysis: REEP conducts thorough crime and headline risk assessments for each property, even if not in a high-crime area. This includes searching media for keywords like shootings, homicides, or murders to evaluate safety risks for potential tenants and on-site management staff.
  • Deal Breakers: Investments in flood-prone areas are automatically sidelined, with additional scrutiny on properties affected by natural disasters like Hurricane Harvey or those near bodies of water. For stabilized assets, non-eligibility for agency financing in the current financial landscape leads to rejection, as REEP favors a fixed-rate agency finance strategy over costly bridge loans.
  • Investor Returns: Ensuring favorable returns for investors is paramount. Analyzing the last 30 leases signed at the property provides insights into organic rent growth trends. Positive growth signals align with REEP’s investment strategy, while negative trends prompt further investigation or consideration of alternative opportunities.

Excellent presentation! Wonderful detail and I learned a lot of new information.

David K.

Key Questions that Were Answered:

Q: Why are sellers selling?

A: One reason for selling is issues with the current loan (i.e. bridge loans). Due to the sharp rise in interest rates, many property owners are unable to refinance, leading them to sell their properties, especially in the case of bridge loans where owners are compelled to divest.

Q: What are we seeing in the area of underwriting rent growth?

A: We are underwriting rent growth at a conservative organic rent growth rate of 3-5%, significantly lower than what we anticipate achieving. This approach ensures fairness and transparency for our investors.

Q: Are we at the bottom of the market?

A: While the exact bottom is uncertain, comparing current prices to the peak in 2021 prompts consideration of purchasing opportunities near or at the market’s low point, provided the right deal at the right time presents itself.

Q: What is the definition of lender sizing?

A: Lender sizing typically refers to the process of obtaining preliminary loan terms based on various factors such as the property’s value, income generated, borrower’s creditworthiness, and the lender’s risk tolerance. It essentially involves assessing the financial capacity and qualifications of the borrower to ascertain the appropriate loan size that aligns with the lender’s criteria and risk assessment standards.

Q: What is a Tier 3 loan?

A: A Tier 3 agency loan refers to a financing option with a more conservative approach, boasting a debt service coverage of 1.35X, a lower loan-to-value ratio (maximum 65% LTV), and more favorable interest rates and interest-only period.

Q: What is a “Highflyer”?

A: A “Highflyer” denotes a buyer who offers a significantly higher purchase price compared to others in the market. While such buyers may initially convince brokers of their ability to pay a big purchase price, they sometimes falter, resulting in the opportunity to boomerang back on the market for a better price.

Q: Do we only try to get fixed rates?

A: In today’s economic climate, yes. Securing loans below 6% is achievable due to our experience and industry relationships. Given the expensive nature of bridge loans in the current landscape, opting for fixed-rate financing is our preferred strategy, along with pursuing loan assumptions when they make sense.

What a smart young Lady, Victoria, we have (you) working for us as investors along with the rest of the REEP TEAM.  Our number one trusted Owner and investor partner is REEP!  

Bob & Kathy Lazenby

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