Do you ever wish for the "good old days?"
That typically means something different to each person.
One might long for the days of childhood, with no responsibility and knowing someone else would always take care of you. Others wish for a simpler time without the pressures of juggling work, family, and social relationships.
I miss the days when you could throw a dart and find a profitable apartment complex!
It’s been tough the past four years.
First, there was Covid, with restrictions on eviction and supply chain issues that affected multifamily buyers and developers. Then came the boom market pricing during 2020/2021, which made it difficult to buy at a good basis, despite appearing easy. This period was followed by a historic rise in interest rates that caught even seasoned real estate professionals with their pants down.
This resulted in low transaction volume in 2023 due to a mismatch between buyers and sellers. The numbers simply did not support the prices sellers were asking, so they did not sell. Multifamily transactions were down 61% in 2023.
In fact, Carbon underwrote over 1500 potential acquisitions in 2023 and none of them transacted. Buyers simply would not accept our offers, which were based on the real numbers and current cost of capital.
Things are changing.
Transaction volume was down in the first quarter of 2024, but that has started to turn around. Global investment firm KKR believes there is huge opportunity due to a lack of forward-looking supply, which they expect will lead to strong increased yields. They recently consummated a $2.1 billion transaction for 5200 apartment units at an aggressively low 4% cap rate.
Their thesis is that they can acquire assets at a discount due to the current dislocations. Returns could be in the low single digits in the first year, but they believe that rising rents and appreciation will boost yields as time goes on.
Additionally, sellers are beginning to capitulate to the realities of a slower transaction environment, making pricing more attractive to value investors.
You don’t have to be a billion-dollar private equity firm to find and purchase good deals.
At Carbon, we underwrite an enormous number of deals. Many are thrown in the trash heap. Those that have promise are put through the second phase of diligence. If they make sense, a Letter of Intent is produced that reflects a price that works for us and our investors.
Most of those offers are rejected, but some reach best and final. Occasionally, we win a deal that is based on OUR numbers. The old adage is, “You make your money on the buy.” Our philosophy is to keep making offers that make sense and not to waiver from our investment thesis of cash flow and hedged risk.
We believe that we are entering an opportunistic buying period for existing multifamily assets.
The affordability gap between renting and buying remains high and demand has rebounded to robust levels.
It’s also no secret that supply has been increasing dramatically over the past four quarters and is projected to do so through the end of the year. This has put downward pressure on rents and occupancy.
However, supply is expected to drop just as dramatically as we enter 2025. This should put upward pressure on rents and occupancy, increasing NOI and allowing well-positioned assets to thrive going forward.
At Carbon, we believe these macroeconomic factors are working in concert to create opportunities to acquire assets that will provide cash flow and appreciation for an extended period of time.
We continue to work diligently with owners and our brokers to find assets that fit these criteria.
Project Update: The Kenzie
We are excited to share the progress of our most recent ongoing renovation at The Kenzie, a 213-unit multifamily property in Alabama. Our capital plan is progressing according to schedule.
Projects completed or in progress:
- Roof Repairs and Tune-Ups: Completed all necessary roof repairs and tune-ups within the first 2 weeks.
- Tree Removal: Over 40 trees have been removed to brighten up the property.
- Main Water Lines: Flushed the main water lines as part of our preventative maintenance plan.
- Furniture Upgrades: Ordered a new pool and clubhouse furniture
Upcoming projects:
- Exterior Painting: We tested various paint schemes and finalized the design for both building types (vinyl and vinyl with brick). The exterior paint project is expected to be completed by the end of the summer.
- Unit Renovations: Finishes two renovation scopes – one with a darker, matte black feel and another with lighter flooring and cabinetry. Sample units will be ready by mid-July, with the renovation project starting on August 1st.
- Amenity Area Redesign: Collaborating with our architect and construction team to design a new pavilion with outdoor kitchens, TV, extended playground, fire pit area, bench swings, and upgraded sports courts, including pickleball courts. Final designs are expected by mid-July.
- Property Signage: Finalized a new property-wide signage package.
The asset is performing efficiently we and remain confident that we will achieve our pro forma rents with the upcoming renovations. Distributions are anticipated to begin in October, highlighting the excellent location and our commitment to enhancing property value and resident satisfaction.
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We hope this information will be helpful as you grow your real estate portfolio. At Carbon Real Estate Investments, we continue to explore opportunities to protect and grow your capital. We also continuously look for information that will be useful to you as investors, whether you invest with us or not! You are our first priority and we hope this has provided you with valuable insights to guide your investment decisions.
If you have any questions, please email tom@carboncrei.com.
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