Lee Kiser is a multifamily expert, active broker and Principal of Kiser Group, Chicagoland’s leading mid-market multifamily brokerage firm.
Participants in the multifamily industry know that we are currently experiencing a tidal wave of activity. Why is this happening, how long will it last and what should you do to take advantage of it? First, let’s review the underlying cause.
Tidal Wave Origins
The multifamily market was artificially and externally constrained last year. What I mean by that is the slow pace last year was not due to internal or regularly occurring cyclical market forces like GDP growth, job formation, rent increase or decline, interest rates, etc. All of the forces on the market that resulted in occupancy and collection issues were external, artificial and temporary. At the 30,000-foot level, these were related to the pandemic and political/civil instability. I’ve previously detailed how these issues (and especially lenders’ reactions to them) impacted the multifamily market.
Resolution — or the perception by the market of resolution — of these issues has resulted in capital from investors and lenders flowing back into the market after a 15-month hiatus. Couple this with the return of renters, a shortage of available rental units in many markets and the inevitable supply/demand problems creating rent growth, and there you have it: a tidal wave of capital, investors and deals being done at a record pace.
Surfing Advice For Investors
The first thing investors should do to take advantage of the tidal wave is to become liquid. This can be done in several ways — selling, refinancing, raising funds, etc. — but the important thing is to have the liquidity needed to be competitive during a highly active period. I described the tidal wave and the perfect storm for leveraging your equity (sorry for all the weather metaphors, but they fit the bill so well) here.
After tapping your equity for liquidity, the next thing you should do is assemble your team. To win deals in a highly competitive market, you should have everyone you need awaiting your call when you find the right deal: broker, lender, due diligence personnel, tradespeople to assist in inspections, attorney and whoever else you want to incorporate. You will not want to take time to do this when you find the right deal; instead, you will want to tee up the opportunity for everyone, get the feedback and make your offer without wasted time or energy. Put them in place now.
The final thing you should do is figure out how to differentiate yourself from other investors. Prepare yourself that prices will be high — that’s a given. Instead of trying to beat out your competition by offering more and more money for a deal, win based on your terms. If you have pre-assembled the personnel you need, offer very short, quick, efficient terms for moving through contingencies and closing. Also consider testimonials from people with whom you’ve completed previous transactions. Another idea is to create a short curriculum vitae or resume about you, your company, properties owned, etc., and a short narrative on why the subject property fulfills certain goals and objectives you have. All of the above will add to your credibility in the eyes of the seller and should help differentiate you from your competition.
Surfing Advice For Sellers
I have only two pieces of advice for sellers:
1. If your business plan for the next two to three years includes selling a property, do not wait. Sell it now. The backlog of capital currently entering the market is already being placed but there is currently more floodwater than the soil can absorb. This will not last. I anticipate that the pent-up capital overflow will be placed by the end of the year, so the third quarter of 2021 is the opportune time to sell and still catch the wave.
2. Hire a professional broker who has a tidal wave-channeling strategy. A strategic and focused marketing plan will force the market to pay what it is willing to pay for your property, not what it wants to pay. Don’t leave money on the table.
The current tidal wave creates extraordinary opportunities for investors, sellers, brokers and all other vendors in the multifamily industry. We should finish 2021 with record levels for rent, occupancy, collection, transactions, loans and all other relevant multifamily KPIs. Don’t look back at 2021 and think “woulda, coulda, shoulda.” Go get your surfboard, get in the water and catch the current tidal wave before it’s gone.
The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.