Institutional investors bidding on smaller and smaller buildings
"In very few cases, we see the institutional push," Linden said. "In fact, in many cases we're buying from REITs that are liquidating in what I would call more suburban locations."
Advenir focuses on three states -- Florida, Texas and Colorado -- and over the last 14 months closed on 2,600 units in those three markets.
A good example of an Advenir deal was the recently completed purchase of a 308-unit property in Orlando, which is not considered an A market by institutional investors. They made the purchase at a 6.6 percent cap rate from the big apartment REIT, Equity Residential of Chicago.
Both Advenir and ROM like the value-add sector because of the potential to increase rents.
"Equity Residential had upgraded about 10 percent of the units and (is) achieving $75 more in rent growth," Linden said. "We are going to maintain that same program as well as upgrade the common areas. This was an early 1990s-era product and we liked the value-add potential."
Occupancy across Advenir's portfolio stands about 95 percent.
On the West Coast, Maciborski reported, "Vacancies in our submarket, Hollywood, is 2 percent. Across our portfolio it's 1 percent. That's a bad sign for us because we aren't raising rents fast enough."
Interestingly, Maciborski is shifting toward the Advenir strategy. "We are looking at product with problems, something we can do as a value-add," he said.
If there is one cloud on the horizon, it might be that apartment performance might have peaked. The Wall Street Journal in October reported that the sector, while still robust, might be losing steam. Quoting an REIS study, the WSJ noted that rents on a national level increased 0.8 percent in the third quarter to $1,090 a month, which was slower than the 1.1 percent increase in the second quarter.
What's an apartment investor to do?
Maciborski suggests buying "selectively," which is not much different from Linden's advice, which is to do better due diligence.
As Linden points out, "In Orlando, for example, you can be in a submarket that is very strong, but go two miles to the west or east and you can be in an area of town that you really don't want to invest in."
Steve Bergsman is a freelance writer in Arizona and author of several books. His latest book, "The Death of Johnny Ace," is now available for sale on Amazon.
|Contact Steve Bergsman:|
|Letter to the Editor|
What's Your Home Worth?