Several key factors currently surfacing in Commercial Real Estate are moving quickly and if we look at these, we can see why multi-family/apartment purchases is a good investment class choice.
In several areas of the country, demand is starting to reach the levels of supply.
Occupancy rates are increasing.
This upward occupancy rate trend will more than likely increase due to five main factors: 1.
The economy is improving (very slowly).
More jobs are coming online, making it possible for room mates and children who moved back in with their parents to go back into the rental market.
2.
Echo-Boomers are over 70 million strong in this country and coming of age.
The majority of these Echo-Boomers will be renters since the face of our national housing industry is being totally reconstructed with stricter purchasing requirements.
3.
People are still losing their homes to foreclosure.
They have and will continue to become renters for the foreseeable future.
4.
There has been a virtual stop to any new apartment building construction with few exceptions.
It will take time to turn that boat around and start these projects back up again; although any movement will now will be with greater caution than ever seen before to avoid over-building supply that helped to land us in our economic disaster since 2008.
Obtaining permits, securing financing and construction, guarantee a slow start up for new construction.
A fifth, and the most interesting reason that points to why now is a good time to buy apartment buildings is that the CMBS (Commercial Mortgage Backed Securities) market is starting to pick up.
This is a very important indicator of the turn around.
If banks can once again package and sell their mortgages, then they will have more confidence in supply the financing to borrowers for new apartment construction.
All indications show that this bond market is strong and deep.
The strong, larger banks will lead the way in the lending market, due to the weakness of many of our regional banks.
This weakness is due mainly to the position these types of banks took by lending on commercial buildings and commercial construction loans which are in, or approaching default.
The larger banks will start loaning again once they feel comfortable that money can be made and they can sell the mortgages off again.
The regional banks are still foreclosing and agreeing to short sales on commercial buildings.
As more loans hit their maturity 2011, 2012 and 2013, more of these apartment buildings will hit the market.
Another Perfect Storm...
We heard a lot about the "perfect storm" that brought down the Real Estate market and sent this country into recession.
It looks like another perfect storm is coming; this time a good storm that will get us and Commercial Real Estate back on track.
What are this storm's dynamics? We have two banking groups: the first group is healthy, has money to lend, but is waiting on the bond market turn.
These are the larger banks.
The other group is comprised of the local and regional banks that made loans now defaulting.
Under each groups' current lending environment we have comparatively cheap apartment buildings for sale today; much cheaper than replacement costs.
An overwhelming conclusion is that if you have cash, buy now! Buy now before occupancies rise and the large banks start lending again, because when that happens the assets will no longer be as cheap as they are now.
Be smart and research each market and building thoroughly, but do start purchasing today! The recovery storm is under way and prices will rise again.
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