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Prospective CRE Targets

Parsad

By Parsad
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rkbabang Mentor

rkbabang

Posted
Posted
On 4/11/2023 at 7:18 PM, Parsad said:

Unfortunately article has a paywall:

 

https://www.wsj.com/articles/houston-apartment-owner-loses-3-200-units-to-foreclosure-as-multifamily-feels-the-heat-fb3d0e75?siteid=yhoof2

 

I think someone on here posted once before on how to get past them.

 

Cheers!

 

 

I always use https://archive.today  It archives it then gives you a link to read it.  Here's the link for that article: https://archive.ph/VNoYt

 

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fareastwarriors Experienced

fareastwarriors

Posted
Posted (edited)
On 4/11/2023 at 4:18 PM, Parsad said:

Unfortunately article has a paywall:

 

https://www.wsj.com/articles/houston-apartment-owner-loses-3-200-units-to-foreclosure-as-multifamily-feels-the-heat-fb3d0e75?siteid=yhoof2

 

I think someone on here posted once before on how to get past them.

 

Cheers!


Don't you manage money? Even you don't have WSJ sub? Does any pay for newspapers anymore? 😉 Anyways I kid. 

 

 

 

 

Quote

Most of Applesway’s loans originated in the second half of 2021, just before the Federal Reserve began its campaign to raise interest rates. At one property, the interest rate on Applesway’s loan had risen from 3.4% to around 8%, according to loan information obtained from data firm Trepp Inc. At least two of the properties were financed with about 80% debt, which is considered high leverage in commercial real estate.

 

Floating rates and high LTV, no wonder they default.  Frankly, deserve it. 

 

Edited by fareastwarriors
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Morgan Community Regular

Morgan

Posted
Posted

I found the four complexes in this article. Heights at Post Oak, Redford Apartments, Reserve at Westwood and Timber Ridge Apartments. They are older buildings that have been periodically renovated. They appear to have central AC and heat, pools, workout rooms, allow pets and some other amenities. I didn't see who pays what utilities on the websites, but I assume the tenant pays them. Probably just electric and water. One other large issue is they are two story buildings as opposed to three or four story buildings. That means a lot more roof maintenance expense per unit when it comes due.   

 

$230m / 3200 units is about $71k per unit. Rents appear to be $775 - $1200. Rather low for that price per unit. I don't know the unit mix, so it's let's just assume $1000/unit/month x 3200 units x 90% occupancy = ~$2.9/mo in rents. A mortgage on $230m, at 8%, for 15 years is $2.2m per month. Roughly 76% of the rents. Waaaaaaay too high. I normally aim for the mortgage to be 25-33% of the rents. So my back of the envelope value is around 80m to 90m depending on financing. 

 

 

Side note 1: I don't know anything about the Houston MF market, so my valuation may never even be possible. Maybe it was during the 08/09 recession. Maybe we'll see it again soon. 

 

Side note 2: The guys who lost the complexes in foreclosure were nuts not to have fixed rate financing. Totally nuts. 

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fareastwarriors Experienced

fareastwarriors

Posted
Posted
12 minutes ago, Morgan said:

I found the four complexes in this article. Heights at Post Oak, Redford Apartments, Reserve at Westwood and Timber Ridge Apartments. They are older buildings that have been periodically renovated. They appear to have central AC and heat, pools, workout rooms, allow pets and some other amenities. I didn't see who pays what utilities on the websites, but I assume the tenant pays them. Probably just electric and water. One other large issue is they are two story buildings as opposed to three or four story buildings. That means a lot more roof maintenance expense per unit when it comes due.   

 

$230m / 3200 units is about $71k per unit. Rents appear to be $775 - $1200. Rather low for that price per unit. I don't know the unit mix, so it's let's just assume $1000/unit/month x 3200 units x 90% occupancy = ~$2.9/mo in rents. A mortgage on $230m, at 8%, for 15 years is $2.2m per month. Roughly 76% of the rents. Waaaaaaay too high. I normally aim for the mortgage to be 25-33% of the rents. So my back of the envelope value is around 80m to 90m depending on financing. 

 

 

Side note 1: I don't know anything about the Houston MF market, so my valuation may never even be possible. Maybe it was during the 08/09 recession. Maybe we'll see it again soon. 

 

Side note 2: The guys who lost the complexes in foreclosure were nuts not to have fixed rate financing. Totally nuts. 

 

Nice to see you chime in Morgan since you manage 100s (1000s?) of units yourself. 

 

 

Floating rate, high LTV, and can't forget the higher property taxes in Texas.  This operator was hoping for a some kind of miracle to make this deal work. 

 

 

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Gregmal Grand Master

Gregmal

Posted
Posted
7 minutes ago, fareastwarriors said:

 

Nice to see you chime in Morgan since you manage 100s (1000s?) of units yourself. 

 

 

Floating rate, high LTV, and can't forget the higher property taxes in Texas.  This operator was hoping for a some kind of miracle to make this deal work. 

 

 

Yea I still see the MF demise argument hinging on assuming every brand new unit is gonna share the same fate as outliers like this where the properties are mediocre and the buyers total dumbasses. 
 

Separately, while I don’t own any yet…KRC is pretty damn interesting.

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Morgan Community Regular

Morgan

Posted
Posted

@fareastwarriors Didn't even think about the property taxes. Another thing to lower the price. 80% LTV is ok if the purchase price is low enough. IF the price is low enough 100% LTV is ok. I've been 100% leveraged on numerous deals, but the price was low enough so there was enough margin of safety to deal with all the various problems that pop up. 

 

Only 170 units now. Been selling some as prices have gone up. I haven't really seen many good deals since covid. Still waiting. 

 

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Gregmal Grand Master

Gregmal

Posted
Posted

Of course a lot of it is overblown. Offices in general are melting ice cubes. MF and retail in decent MSA are fine. Self storage is fine. Maybe industrial is a bit overdone but so what after the run it’s had. Just avoid office and be extra careful with blue cities and states and you’ll be fine. 

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changegonnacome Veteran

changegonnacome

Posted
Posted

Google and Meta are potentially coming to put a bid under CRE.....both dropping the hammer in the last few days in company memos tightening up their remote policies moving forward.....senior exec management but especially middle management needs/wants bodies back in the office.......leverage has been the only thing missing up until now to achieve that & it seems Meta and Google felt the scales are tipping in their favor in the last month or so such that the time had come to drive the herd back into their hotdesks and cubicles.

 

There's a price for everything and lots of this CRE stuff needs to come back to reality........but like lots of trends it will get over baked at a certain point.......I like this thread CRE soon, if not already, will become the most hated asset class out there.

 

https://www.washingtonpost.com/business/2023/06/08/google-salesforce-return-to-office/

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