📉 Have CRE prices bottomed out?

👋 Hello, Best Ever Community!

In today’s newsletter, CRE prices bottom out (maybe), Joe Fairless attracts top-notch tenants, and one investor surpasses his five-year pro forma NOI in just seven months. 

This week’s newsletter is brought to you by Viking Capital, a multifamily boutique with nimble investment sourcing, structuring, execution, and asset management capabilities. Learn more about Viking Capital here.

Let’s real estate!

_{🗞 NO-FLUFF NEWS}
CRE HEADLINES

🏢 Distress Test: Headlines highlight office distress, but forced sales are still surprisingly rare. Only 3.5% of offices sold last year came from a distressed seller, thanks to optimism and forgiving lenders.

🔥 Denver Is on Fire: Despite its high home prices relative to the national average, Colorado’s Capital took the top spot in U.S. News’s recent list of the nation’s 20 hottest housing markets. 

😍 Renters Love Minny: Renters searched for apartments in Minneapolis more than any other market in February. Apartment searches in Minneapolis grew a staggering 234% compared to February last year.

🏭 Dallas Does Industrial: Dallas led the industrial sector in terms of deliveries in 2023, with almost 61.9 million square feet delivered across 177 properties, more than doubling the average pace nationally.

💬 Stagflation Is Coming?: More than 66% of academic economists polled by the Financial Times believe that the Fed will be forced to hold interest rates at a high level for longer than anticipated, and that “stagflation” will follow.

_{⭐️ TOP STORY}
HAVE CRE PRICES BOTTOMED OUT?

Everyone wants to buy the bottom. As many investors sit on the sidelines waiting for the right time to deploy their capital, some big players are signaling that CRE prices may have bottomed out and that the time to invest might not just be coming — it may already be here.

💰 Players Gon’ Play: Goldman Sachs said last week that it’s ready to start “actively investing” in commercial real estate again. Interest rates are a big reason why. The consensus is that rate decreases are coming, we just don’t know when. Some are saying September is the ideal time while others say that the election could push them up to June. And investors are waiting, ready to pounce. But according to Blackstone President Jon Gray, the time to make a move is not after the rates come down, but before — and Blackstone appears to also be jumping on the buying bandwagon.

🌱 Signs of Life: Smaller players are getting more active, too. Logan Freeman, co-founder and principal at FTW Investments and a CRE broker in Kansas City, MO, said on the Best Ever Show this week that sellers are beginning to realize that prices are not going to come down to where they were two years ago, which has been a factor in stagnating the market. “We're starting to get some people really come to the reality that those prices are gone,” he said. “And it does seem to me that … deals are getting penciled out. They are transacting. And those expectations for returns have been changing for investors.”

🏁 Runners, Take Your Mark: Real estate prices are not always directly tied to interest rates, though in this environment, rates get all the attention. Should interest rates drop, investors across asset classes will mobilize, and competition for those who’ve been starved of deals will be stiff, signaling that now may be the time to dust off that old capital and get back in the game.

📣 “The fundamentals feel like they’re bottoming,” Gray said in an interview last week, signaling a light at the end of the tunnel. With the big players taking the lead, more capital will follow, and the “new normal” may begin to materialize as sellers come to grips with new pricing thresholds and mom-and-pop investors begin buying again. “As investors,” Gray said, “sometimes, one of the risks is that you miss it by being overly cautious, and I think now is probably a good time before rates come down.”

🎧 Listen to Logan’s analysis here. 

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_{✍️ BEST EVER BLOG}
FROM JOE FAIRLESS

One of the main factors that will make or break your apartment budget is the quality of residents you attract. A high-quality resident pays rent on time, treats the unit and apartment community as if it were their own home, and is courteous to their neighbors. High-quality residents not only make your life easier, but they also make you and your passive investors more money in the long run.

A successful apartment syndicator or property manager will proactively implement procedures to attract the best-qualified residents in the area. 

📣 Build a Referral Program: Many renters find a home through referrals. To capitalize on this, you should create a referral program and offer a bonus to any current resident who refers someone to the apartment community. A bonus of $300 paid 30 days after the execution of the new lease is standard.

💵 Financially Incentivize Your Leasing Staff: Most apartment owners or property management companies offer their leasing staff a small bonus for each new move-in, with $50 being the standard. In addition, you can set monthly move-in or occupancy goals and offer a larger bonus, like a $100 to $250 gift card, if they hit the specified target.

🎉 Hold Resident Appreciation Parties: To promote resident satisfaction and retention, host monthly resident appreciation parties. These can be as small as providing a small breakfast or wine night in a common area on a monthly basis. Another idea is to host timely or holiday-themed events, like a Valentine’s Day card-making event, holiday gift-wrapping party, back-to-school barbecue, or a Halloween costume contest.

👉 View the full article here.

_{🏠 DEAL BREAKDOWN}
EXCEEDED 5-YEAR PRO FORMA NOI IN JUST 7 MONTHS

George Roberts III, Ph.D. exceeded the five-year pro forma NOI on this multifamily property within seven months of purchase. Here's how he did it. 👇

🏢 Property Details: 34-unit Class C multifamily property at 97% occupancy purchased in November 2021 in Jefferson City, TN. 

💸 Finances: Purchase price was $2.2 million with $900,000 in capital raised. 

💵 Debt Structure: Seller financing, seven years at 3.5%. 

💼 Business Plan: Replaced management and renovated 19 of 24 units. Interior upgrades included new flooring, paint, appliances, countertops, vanities, fixtures, balconies, and electrical. Exterior upgrades included a patio area and dog park.

🍾 Results: 12% cash-on-cash currently. Raised rents from $700 at time of purchase to $1,200. Exceeded five-year pro forma NOI within seven months. He plans to hold for the time being. 

If you have a deal you'd like us to feature, share it with us!

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_{🎓 EXPERT RESOURCES}
FREE DOCUMENT DOWNLOAD

💸 Accredited Investor Questionnaire

The purpose of this document is to provide you with a list of questions to ask an individual who is interested in investing in one of your deals — either a current deal or a future deal. The outcome of the questionnaire is to qualify the individual, determine their investment goals, and verify that those goals align with your business plan. Think of it as a screening process.

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Hope you have a Best Ever rest of your week!

—Joe Fairless