Market Observations

If you are in real estate development today, you have be very careful to not fall into the thinking that characterized the industry for the past decade. When you are thinking about your business today, you have to consider that there is no job growth, people have more debt than ever before, companies are shrinking, and the government is growing dramatically. This is hardly a signal to developers to add more space to our cities. We all know this wasn’t the case only a short time ago. In 2005, all signs pointed in the opposite direction and we added condos, single-family homes, malls, offices and whatever else we could build as fast as we could build it. It’s in our nature as human beings that when you find success at doing something, you tend to keep doing it. Unfortunately, too many people were still doing it in 2006-2007. Not only did this contribute to the Great Recession, but this thinking is still affecting deals today. We regularly meet land sellers that have expectations of value and terms that were commonplace 5 years ago. Unfortunately, in this environment, land has little value. We used to say that land is local. I am not sure that is the case today. Today, it’s value is affected by a much broader market context. Equity is chasing high quality, very well located, trophy assets. There is still value-add opportunities all over the country. Cap rates have dipped below 6% in parts of the country. If you start thinking that you can go buy 5 or 10 acres for a couple of hundred apartment units in “name your typically strong suburban market here”; then you better be lining up public financing, tax-credits, or a land seller willing to contribute the land to the deal. We’re looking at new angles to every deal today. As we (hopefully) emerge from the Great Recession, it is clear that 2010 and 2011 are shaping up to be the among the most difficult and most creative financing times for multi-family in America. Let us know if we can help you with your project.