Top of the Cycle?

What good times these recent years have been for the apartment business!  Rising rents, lower occupancy, persistently low interest rates, and caps rates like we've never seen before.  How long can it last?

Without a doubt, we are seeing some markets where a tidal wave of over-supply is about to crash onto the market, and particularly in the Class "A" segment.  As this supply comes online in the next 3-12 months vacancy rates will decline in these markets, and inevitably effective rents will decline as well, though this final effect may take a year or two before it takes hold.  Those who are caught out of phase with the cycle, which is to say those who are under recourse construction financing, may find they unexpectedly may need to bring more equity to the table to refinance into their permanent loan after completion of lease-up.

On the other hand, there are still some great opportunities in markets that may have been overlooked during this apartment construction boom-- markets that have great employment growth, solid demographics and wise political leadership.  Secondary markets?  Tertiary markets?  These description may send vaguely negative, but for the savvy developer/investor, these places are where the opportunities exist.  Great opportunities.

Does it take more work?  More digging?  Absolutely.

Creativity and hard work are always rewarded.

Safelite Autoglass

Safelite Autoglass

Zimmerman Development is pleased to announce groundbreaking on a design-build facility for Safelite Autoglass.  Working together in an innovative partnership with N3 Real Estate out of Southlake Texas, delivery of this 3700 sq. ft. building is scheduled for the end of 2013.

Based out of Columbus, Ohio Safelite Autoglass is the nation's premier autoglass replacement company.  In business for over 65 years, Safelite serves more than 4 million customers per year.

 

Good Times for Apartments

Vastly improved operating fundamentals have driven cap rates way down on apartments.  Development of new product has followed and the numbers for multifamily construction are substantially increased, particularly in primary markets.  Plus, it's not as easy to get a mortgage as in the "good" old days.  How long will it last?  When will new supply moderate the strong operating fundamentals?

An excellent analysis by Costar Group.

CoStar Group - Home

http://www.costar.com/News/Article/Will-Building-Boom-End-the-Party-for-Apt-Investors-/148604?ref=100&iid=337&cid=D712B1D91E8C961FE0BDDDA120FF8BE5

Retail One on One -- Orlando

My Development Director Tim Greene and I recently attended the Orlando Retailer One-on-One.  It was a very good networking event, a good opportunity to reconnect with colleagues, and most importantly a good chance to figure our where we all stand heading into mid-2013.

After the conference, as Tim and discussed the event our take-away was this: time to gear up.  Retailers are getting serious about expanding again and there are definitely deals to be made.  What a relief from just a few short years (months?) ago when developers were rebuilding balance sheets, lenders were taking government bailouts, and the majority of retailers had put all expansion plans on the shelf.

In what important ways will it be different this time?  The era of irrational exuberance is over.  Not everybody survived the contraction.  Those who have survived are leaner, more focused, and ready to perform profitably in the future.

Apartment Refinancing

It's time to refinance some existing loans on our apartment portfolio.  I've been joking with my colleagues that we must be the last people on earth still making payments on our CMBS as that business has had such high delinquency rates in recent years.

In the past, we've placed permanent financing with small community banks (long time ago), Fannie Mae, Freddie Mac, CMBS, and HUD.

Today we're attracted more and more to the HUD 223(f) program with its historically low rates and 35 year amortization.  Our focus is on building cash-flow rather than debt-financed distributions and this program helps us achieve that.  We also like that the loans terms are reasonable when it comes to assumability.

Seek out a good MAP lender and be prepared for some brain damage.  It can take up to 9 months to get HUD's commitment, so you're definitely carrying some interest rate risk there.  But at sub-4% rates, it's hard to turn down.