Multifamily Inventory is down in the Mobile and Pensacola Markets do to the high occupancy and high rents owners are enjoying. This has led Investors to seek out properties they normally would not purchase because of lower margins in returns.
So where are deals being found? The multifamily class seeing the most action right now is the Class C market that has a value add opportunity due to low rents, low occupancy, deferred maintenance or bad management, or a combination of all four, which is typically the case. There is an occasional Class A/B apartment community or two to hit the market but they don’t last long and usually are sold without ever hitting the open market. An example would be the 3 Class B properties in Baldwin County that sold off market in Feb 2016.
Owners in our market know that this asset class has been hot since 2013 and that the multifamily inventory is low. This has led to higher asking prices then is typical for Mobile or Pensacola. I recently had a conversation with an owner that was thinking of selling a Class B property with more than 150 units and when we started to discuss value he informed he would not sell below $125,000 a unit, and on his current NOI would lead to a 4.3% cap rate. I explained that brand new Class A assets were not even coming close to that cap rate in our market, 6.29% has been the lowest recorded to date, and he said, “Then I’ll just wait for the market to come down to 4.3%.
This leaves us with Class C properties that have problems. This is good and bad. Good because this represents an opportunity to purchase an asset and it improve it for better returns and bad because, as in the example above, owners know the multifamily market is hot. This leads to pricing challenges.
For investors here’s my advice on finding Class C multifamily properties in Mobile and Pensacola. Enter the market with an open mind and with the intention that there’s going to be issues with the properties. As much as we try and price these properties properly there’s still an opportunity for negotiations so don’t be afraid to submit offers on good deals, even if they’re below what you feel is respectable. This doesn’t mean low ball at 50% below ask.
For owners thinking of selling their property my advice to you is ask a multifamily broker for an opinion of value and advice on whether it’s time to sell or hold in the market. A good broker with integrity will give an honest opinion and support your decision.
Even though our Multifamily Inventory is low right now, stand by. Rents are stabilizing and vacancy is increasing across the country and in our markets. This is going to lead to owner’s selling assets that were purchased with the intent to sell before this market cycle goes over the hump.