Pricing Stands Strong on Apartment Acquisitions

LOS ANGELES—The buyer pool for apartment properties has never been as competitive as today. What is key is to not only have relationships, but to come in strong and also have a good track record, and speed of getting deals done and doing due diligence early. That is according to panelists at the recent national GlobeSt. Multifamily conference in Los Angeles. 

According to Equity Residential’s Jim Alexander, on certain deals, the depth of the buyer pool is starting to thin out but the pricing is holding strong. “From our perspective, we want to stay competitive on the front end of the process and come in strong in our initial bids relative to what we have done in past cycles. Brokers are giving guidance and more often than not, pricing is going well past guidance.

Panelist Jay Glaubach of Ares Real Estate Group added that speed of execution is huge thanks to those looking to complete deals by year end. For Ares, their perspective in underwriting hasn’t changed in this environment. “We have always been as active in suburban markets as we have in urban. Our activity has shifted in volume. We aren’t targeting anything tertiary and when it comes to underwriting standards, we have always added a buffer.” 

He continued that one of the major things to think about when underwriting development is the massive demand for construction materials and services. “The limitations in California is entitlement and Government driven… You really have to make sure to pay attention to construction costs and not kid yourself on yields.”

What has helped Rodney Chu of UBS Asset Management in the pandemic is being able to sit at home and look at all the data that his company has purchased. Doing so has helped them zero in on development in growth markets. If you don’t do that, he said, “There isn’t the basis play that is attractive enough to make those other bets right now to experience growth that is on par or surpasses some alternatives.”

When looking at the fact that nominal rents in the Inland Empire are higher today than effective rents in places like Downtown Los Angeles, Paul Keller of Mack Real Estate Development said that until we are farther along in the intersection of living in a post-Covid world and until we see what extent people will continue to work from home, it will be hard to tell how long that will be sustainable. “We have to see to what extent commercial office buildings in Downtown will fill up again, and those populations support the bars, restaurants and venues. So it is somewhat of an unknown,” he said. “One of the upsides and downsides of owning multifamily is adjusting your NOI, but boy it hurts when you are adjusting it down.”