Here is a great study done by www.hawthornegroupinc.com located in MN on the 2007 year end summary and outlook for 2008 in the multi-family MN sector! This shows now is the time to pull your capital out of underperformed CD,Bonds,Stock market and get it into our Private Lending Opportunities to earn 10-12% per year, secured against undervalue multi-family real estate at 30-80% LTV!
Is there a hiccup in your future?
2007 Year End Summary :
Sales Transactions: The number of transactions in 2007 were approximately one half the number of those in 2006. The percentage of decrease appears to generally be in direct proportion to the size of the complex.
Price Per Unit Analysis: [Range: $25,000-151,250] Four out of five size categories experienced a decrease in price. The average price decreased 3% with most of the price reduction occurring in the more expensive buildings in each category.
Housing Affordability: Due to the median sales price for houses dropping to $214,900, and average rent increasing to $899 (an approximate 3% increase), the Affordability Index increased to 147, about the same as it was in 2005. At $341 per month, the Rental Differential is the lowest it has been since 2004.
Go to www.hawthornegroupinc.com and click “Statistics” for detailed sales data as well as affordability statistics.
Job Growth: December unemployment was 4.9%. This represents a 15% increase from year end 2006. Minnesota continues to struggle to improve over the national rates.
Perhaps equally noteworthy is that our labor force actually decreased by 13,700 people in 2007 - the actual number of people employed decreased by 25,000. Therefore, not only is our unemployment rising but it is rising in the midst of a decreasing labor force and job opportunities.
So, where are we going in the 1st Half of 2008?
Operations: Currently, owners and operators are experiencing increasing revenues with relatively stabilized vacancies and operating expenses. We are well into the recovery phase of the operating cycle. This will persist throughout 2008; however, issues with the economy and the job market will begin to affect some complexes to varied degrees. Much of this impact will be determined by the market the property serves as well as its location.
Sales: Debt- These are unsettling times. Interest rates are being forced down but are offset by more conservative underwriting parameters. This is a time for shopping the market to determine the availability of money and associated terms. Established relationships are definitely of value at this time. As lenders and the secondary market overcome their unease and reestablish clear lending parameters, the industry should stabilize with adequate capacity.
Equity: Equity continues to flow into the multihousing sector but is demanding increasing yields. This will continue throughout the year. In addition, the industry will (and may already) begin to feel the competition for funds from alternative uses. This impact will be felt most directly by the large and more expensive complexes.
The Market: Substantial product, especially under fifty units, appears to be available in the market place. Sellers continue to expect premium valuations and are finding resistance from buyers. Cap rates will trend up for the remainder of 2008 and will only decrease as the debt market stabilizes and the longer term operations picture stabilizes.
Longer Term Considerations:
Real Time Rental Pricing: Is this the future: owners increasingly tracking a large number of variables on a daily basis to maximize rental value similar to the way it is done in the travel and entertainment industries?
Conclusion: Perceptions are the key element for 2008. Operators will have a successful and increasingly profitable year but some operations will be more susceptible to influences from the economy and an eroding job market than others. Yield demands, for both debt and equity, will be increasingly subject to the flow of funds. This will impact the sales market. My bet is that yield demands are going to continue to rise well into 2008.
So, where are we going in the 1st Half of 2008?
Operations: Currently, owners and operators are experiencing increasing revenues with relatively stabilized vacancies and operating expenses. We are well into the recovery phase of the operating cycle. This will persist throughout 2008; however, issues with the economy and the job market will begin to affect some complexes to varied degrees. Much of this impact will be determined by the market the property serves as well as its location.
Sales: Debt- These are unsettling times. Interest rates are being forced down but are offset by more conservative underwriting parameters. This is a time for shopping the market to determine the availability of money and associated terms. Established relationships are definitely of value at this time. As lenders and the secondary market overcome their unease and reestablish clear lending parameters, the industry should stabilize with adequate capacity.
Equity: Equity continues to flow into the multihousing sector but is demanding increasing yields. This will continue throughout the year. In addition, the industry will (and may already) begin to feel the competition for funds from alternative uses. This impact will be felt most directly by the large and more expensive complexes.
The Market: Substantial product, especially under fifty units, appears to be available in the market place. Sellers continue to expect premium valuations and are finding resistance from buyers. Cap rates will trend up for the remainder of 2008 and will only decrease as the debt market stabilizes and the longer term operations picture stabilizes.
Longer Term Considerations:
Real Time Rental Pricing: Is this the future: owners increasingly tracking a large number of variables on a daily basis to maximize rental value similar to the way it is done in the travel and entertainment industries?
Conclusion: Perceptions are the key element for 2008. Operators will have a successful and increasingly profitable year but some operations will be more susceptible to influences from the economy and an eroding job market than others. Yield demands, for both debt and equity, will be increasingly subject to the flow of funds. This will impact the sales market. My bet is that yield demands are going to continue to rise well into 2008.
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