High Quality Multi-family REITs - EQR, CPT, ESS, AVB

[BG2008]

I didn't save the tweet, but there a handful of RE Twittter personalities saying that they can find any MF at 4% cap rate in Dallas. 

[thepupil]

EQR results look pretty bad, as expected.

[BG2008]

I didn't save the tweet, but there a handful of RE Twittter personalities saying that they can find any MF at 4% cap rate in Dallas.

 

I meant to say "Can't"

[CorpRaider]

What's your @twitter BG?

[rb]

Wow! This thing looks like a slasher film today.

[thepupil]

$337K / unit, 5.8% cap on new fundamentals, bought a little more but by no means a material position yet. waiting for and expect more pain, many years of pain.

 

 

[thepupil]

https://www.privateeyecapital.com/essex-property-trust-3q-results-pretty-pretty-good/

 

 

[thepupil]

 

 

luxury building on union square south going for $884K / unit. without knowledge of the value of the retail, difficult to figure out an "apartment only" price.

 

an NYC bear say "you can't count this one, because it has high value retail near/on union square. that's not a real per unit price"...to which i'd respond" so you're saying well-located NYC retail has a  lot of value?

 

this is a pretty expensive building: https://streeteasy.com/building/1-union-square-south-new_york#tab_building_detail=1

 

a penthouse 1BR is $6K and a studio is $3.5K.

 

bonus points to who knows who owns the whole foods next door on Union Square, Whole Foods first location in NYC. i'll give you a hint. it rhymes with Tornado.

 

 

[thepupil]

Mentioned on other threads by me and a few others, but I think apartments deserve their own thread, but don't think they all individually deserve their own thread.

 

No hard science to my picks here, diversification is protection against ignorance and when these stocks fell at the pace they fell, I'm not going to kid myself and say I went through every companies filings or built up a property by property, city by city valuation.

 

Broadly, these companies have

a) very low leverage, thus a decline in share price is a decline in enterprise value/asset value

b) high occupancy in (mostly) higher barrier to entry high housing cost markets

c) high income yuppie renters (example: EQR's average income renter is makes $165K, that's not a waitress or uber driver), does a coder at GOOG lose her job from COVID-19, what about a big law associate in DC? maybe a financier in NYC does.

d) cap rates blew out to 6% or more (this changes by the day); investment grade spreads have blown out as well, but these have well-termed out debt. once credit stabilizes, these guys are going to print some incredibly low-cost debt as multi-fam debt (agency and corporate IG) will in my view be a safe haven in an otherwise tumultuous commercial real estate credit world (hotels, some office)

e) 4-5%+ divvy yields that appear sustainable.

 

Risks:

a) rents will surely come down as new supply hits a weaker economy (but these buildings will remain full, in my view)

b) I think one should haircut NOI 5-15%, not 30%

c) these weren't cheap beforehand from a public or private market perspective; i was previously an apartments hater as I thought it was one of the steamier parts of the real estate and real estate finance world. a 30%-40% move down in prices (which at low leverage flows straight to the asset level) makes me an apartment lover (in basket form at 10-15% lower prices than today's levels, but we'll probably get a few more bites at the apple)

 

the bolded was wrong.

 

if we assign credibility to the apartment REITs guidance (and assume no further degradation), NOI peak to trough is going to be more like 20%.

 

since this post the apartment REITs returned 6-26% vs SPY of 56%, since I bought them the first time around, they returned 30-62%, but the S&P returned 77% (all rough figures, I've bot and trimmed them along the way as they've been volatile)

 

despite the underperformance, I don't think they're super interesting today, own them in basket form in smaller size than peak. I think financing and capital market conditions have been wonderful, better than they ever have been for these guys, and the cities are showing green shoots (and sunbelt is going nuts MAA/CPT), but even assuming full recovery they're not super attractive, unless you give FULL credit for the private market sub 4 cap craziness going on.

 

on the other hand, with single-family housing prices doing what they're doing, the value proposition of an amenitized $2,500 / month apartment is probably being further validated (if you want to live in these areas). and i do think multi-family is one of the few spots in real estate where it is a legit inflation hedge (1 yr lease length, 60-70% NOI margins, relatively low capital intensity (compared to office), increasing land/labor/materials cost increase cost of new supply)

 

 

 

 

 

[CorpRaider]

I'm about to dump my AIRC.

[fareastwarriors]

I'm about to dump my AIRC.

 

Why? Why now?

[CorpRaider]

I thought $50 was/is a fair price, but you're right I should probably sit on my duff and cash the dividends and just start monitoring the moving averages and stuff.

[thepupil]

On 10/4/2020 at 10:08 AM, rb said:

I have to thank the pupil again for this excellent post. Especially for the fact that he placed some markers. From the longer post I'll pick this.

 

A 1000 square foot two bedroom is listed for $3600 / month and up. studio's and one bedrooms $2,100-$2,200 and up.

 

His post was made at the beginning of April and the numbers checked out. If you go now to the Wisconsin place website you'll see that the 1000 sqft 2 bedrooms are starting at $2400 (It was $2600 when I checked a few weeks ago). The studios are now at $1600.

 

I think this may be an indication that something very bad may have happened to the rental markets. I cannot remember any rental drops comparable to these in 08/09.

to update on the Wisconsin Place tracking

April 2020:          2BR's: $3,600

October 2020:    2BR's $2,400

April 2021:           2BR's $3,100

Nature appears to be healing for yuppie apartments. 

where i used to live, my 2BR unit is now $3,100. this is what i rented it for in 2016 which had dropped from $3,400 ish due to some new supply that had recently came on, we locked this in for 2 years, it got raised to $3,300, then we chose to not renew in 2019 when it got bumped to $3,500 (and it was time for us to buy). 

using this anecdata, rents are staging strong recoveries from the lows, but aren't near peak (not sure if they get to peak for a while).

I think all this is mostly priced in and don't think the high quality blue chip MF REITs are terribly attractive (unless we go full Europe/Japan etc in terms of rates or Canada / Oz in terms of housing prices lol.