Some investors are beginning to question if a bubble is building in multifamily. Time and again lately, REIT's and funds are swooping in at a 5% cap to take good multi properties away from private owner/developers who think that is a rich price to pay. More and more private investors work on their due diligence and preparing a bid at a 7% or even 6% cap proposal only to see a fund swoop in and take the deal off the table with an all cash offer at a price that seems unrealistic.

The easiest thing to finance for new development these days is multi and it is the easiest to exit with a quick profit, so a lot of multi is being developed or is in planning. While demand is still good for multi in many markets, and the concept of home ownership is apparently far less than it had been six years ago, there are limits and risks. Over building in some areas is becoming a real possibility and increasing rents may become much harder soon as the economy is still just muddling along and consumer spending is stagnant. Young people and families are not seeing much, if any increase in spendable income, and so rents may not have a lot more room to rise.

This may be the time to begin to sell multi before the exit door gets crowded. If you have a good asset in a good market, getting a 5% cap is very possible. If rents are beginning to top out, and if rates are going to rise next year, then this may be the peak pricing point. Better out now, than betting on hope that gets less realistic as the months pass.

There is also a major black swan risk now, Israel is not likely to stop its military attacks until this time they really wipe out the rockets and end the cycle of attacks every few years once and for all. The entire dynamics of that situation have never been more favorable to Israel to do this now. Iron Dome is 90% effective and has been a total game changer. Now Israel can afford to keep the attack on Hamas going with little risk of any rockets hitting population centers in Israel. Most Israelis are all in favor of this military campaign continuing and they are not that bothered by the rockets incoming as they feel pretty safe with iron Dome. In addition if Israel knocks out the rocket threat from Gaza it eliminates a major place for retaliation by Iran when Israel attacks Iran. This is a hugely important strategic moment for Israel and the entire Iran situation. Now that Egypt is again ruled by the military, there is very close working relationship between Egypt and Israel. Egypt has shut off the flow of rockets form Iran into Gaza and they have stopped the transfer of money from Saudis to Hamas that went through Egypt. The tunnels and border crossing are closed. Egypt is also providing key intelligence to Israel. Because Hamas is seen by Egypt as the biggest threat to them and their ties to the Brotherhood, they are as anxious as Israel to kill all of the Hamas militants and their leadership. All of this is very good for the US, but it is impossible to know where this all goes from here. Then we have Iraq and Syria, and the massively destabilizing impact that is having and the renewed real threat of an attempted terror attack in New York again or on a plane. Again there is no way to predict where all this is going. Unfortunately due to the Obama/Clinton/ Kerry foreign policy, the players in the Mid East now ignore anything the US says and are not influenced by what Obama says. That puts a further element of risk and loss of control of the situation. The black swan risk is now very real, which is further reason to take advantage of the low cap rate environment and sell now. Maybe it will all be fine, but is the extra potential profit worth the real risks coming at us. Maybe having been at this for 50 years has taught me that sweeping a good return off the table sooner is a much better strategy than hoping for a slightly better price in the face of clear and present risks. Over my career I have seen too many owners who said I am waiting for the price to go up even further, only to see it fall.

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Joel Ross

Joel Ross began his career in Wall St as an investment banker in 1965, handling corporate advisory matters for a variety of clients. During the seventies he was CEO of North American operations for a UK based conglomerate, and sat on the parent company board. In 1981, he began his own firm handling leveraged buyouts, investment banking and real estate financing. In 1984 Ross began providing investment banking services and arranging financing for real estate transactions with his own firm, Ross Properties, Inc. In 1993 Ross and a partner, Lexington Mortgage, created the first Wall St hotel CMBS program in conjunction with Nomura. They went on to develop a similar CMBS program for another major Wall St investment bank and for five leading hotel companies. Lexington, in partnership with Mr. Ross established a hotel mortgage bank table funded by an investment bank, and making all CMBS hotel loans on their behalf. In 1999 he formed Citadel Realty Advisors as a successor to Ross Properties Corp., focusing on real estate investment banking in the US, UK and Paris. He has closed over $3.0 billion of financings for office, hotel, retail, land and multifamily projects. Ross is also a founder of Market Street Investors, a brownfield land development company, and has been involved in the acquisition of notes on defaulted loans and various REO assets in conjunction with several major investors. Ross was an adjunct professor in the graduate program at the NYU Hotel School. He is a member of Urban Land Institute and was a member of the leadership of his ULI council. In 1999, he conceived and co-authored with PricewaterhouseCoopers, the Hotel Mortgage Performance Report, a major study of hotel mortgage default rates.