Multifamily Investors Look Past Traditional Markets for Deals

"Where are you buying?"

Bradley Tennant, senior managing director of RealAdvice, said that question has come up more and more in investment conversations over the past year. Institutional capital is moving beyond the markets that usually dominate deal talk. For multifamily investors, that puts more weight on knowing local markets well, running properties efficiently and paying the right price.

Tennant made the point during "Anatomy of a Deal: Deconstructing Multifamily Transactions," a panel at GlobeSt.'s Multifamily Owners Forum in San Diego. Eric Myers, chief financial officer of Pahlisch Commercial Inc., moderated. Tennant was joined by Aaron Pacillio, chief investment officer of Davlyn Investments and Paul Julian, president of Advanced Real Estate.

Institutional Capital Heads To New Markets

Tennant's firm works with investors nationwide. He said institutional buyers are now looking well past their usual target lists, citing Boone County, North Carolina, as an example.

Moving into those areas means learning new micro markets and doing more work to understand what each one offers. Tennant said that extra research and market-level diligence are helping investors find deals that can produce strong returns.

A Basis Built To Withstand Uncertainty

Location is only part of it. The price paid can carry a deal when a local economy looks shaky and Julian pointed to his firm's recent purchase in Hollywood as an example.

Advanced Real Estate paid more than $500,000 per unit for the property. Julian estimated that building something comparable today would cost about $1 million per unit. That gap gives the investment a cushion against uncertainty about the local entertainment industry.

Julian said he believes the area will stay attractive over the long term because of its weather, restaurants and other amenities. Even if the entertainment industry left, he said, the purchase price would still make the deal a smart play.

Operations Separate The Winners

Once a property is bought, returns depend on how well it's run. Pacillio said knowing a market deeply and managing properties in-house give his firm an edge when competition is tight.

"We pay premium of having property management in house," Pacillio said. He described multifamily investing as "a game of inches," where small operating advantages can change final returns.

Reputation Carries Weight In Crowded Bids

Getting the deal in the first place can depend on more than price. Julian said a buyer's track record becomes a real advantage when many bidders compete for the same property.

"In those highly bid out deals, your reputation comes through," Julian said.

As capital spreads into new markets and competition for good assets stays strong, the panelists' message was consistent. The investors who do best will be the ones who do the local research, buy at a defensible basis, run their properties well and have a reputation that sellers trust.

Check back with GlobeSt.com for more from the Multifamily Owners Summit.

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