Inner SPARK July 2024
Spark Multifamily Investment Group
I help you achieve financial freedom and create the life of your dreams through passive real estate investments.
Hi Everyone,
Laura and I had a great time in Savannah GA at the end of June. It was hot and muggy for sure but we didn't really mind - it was all part of the experience.
We stayed at the Hotel Bardo (two thumbs up) right across from Forsyth Park and never got back in our car once we arrived.
When we travel, we love being able to just walk wherever we want to go. It's good exercise and helps burn off a few calories from some of the great meals we had when there. :-)
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Of course, we feel gratitude to be able to take off on a short road trip in the middle of the week and have lots of fun.
We returned home and soon thereafter celebrated the 4th of July. It is one of our favorite holidays - and beyond the family & friends BBQ afternoon, it's a time to feel gratitude and be thankful to live in the United States of America.
Given the fast-paced hustle and bustle of contemporary life and with the 24/7 news cycle constantly hammering at us, I find it is sometime easy to forget the blessings we have. Memorial Day and July 4th are welcome reminders of how good life is here.
We recently celebrated the June closings for both the Townes @ Wofford Pine and the Townes @ Silos with our good friends and partners from Aline Capital in Greenville at Camp in downtown Greenville.
Best of all - the ladies were able to join us and we all had a great time.
We asked the server to make the menu selections for us and the dinner was excellent.
Of course, I am passionate about real estate and what it can do to provide financial freedom & security and additional income streams to investors.
But, truth be told, I really enjoy the relationship aspect of the commercial real estate business. One can build great friendships through business endeavors.
We value the personal relationships we have developed with our investor partners and our commercial real estate colleagues.
Now that Dan Rowley has joined Spark Investment Group, he will provide his personal perspective on the real estate market each month in the Inner Spark newsletter - providing commentary and analysis on issues impacting the real estate market and the economy. I am confident we can all benefit from some of the data driven insights Dan will share with us.
Rowley's Reflections
Dan’s Case study – Pivoting strategy based on the market
Here’s a recounting of a recent personal real estate investing experience that illustrates that it’s hard to predict the future and the macro-economic conditions.?
At the same time it shows that if one buys good property in a good location then generally you will do ok.
Back in 2021 we purchased (i.e. - put a modest $45k deposit down) on a pre-construction higher-end townhome - in a new community with nice amenities - that is literally down the street from our residence here in Cary, NC.?
We felt good about the growth and expansion and economic outlook in this area based on all we were seeing. ?
We initially planned to hold it as a rental after it was completed and after 8-10 years we felt there was a possibility we may want to live in it and downsize a bit.
The project took an additional year + to construct vs. what was planned but that actually was fine by us as our equity was growing as home prices continued to rise in the area. ? When our unit finally completed, in early 2024, the interest rates to finance it were north of 7%, vs. ~4% rates when we signed the contract.? Thus, it no longer made sense in our view to hold as a rental because the debt service cost has risen substantially and it would yield negative cash flow.?
So, we pivoted and decided to sell it immediately given the value/price has risen substantially in the 3 years since we signed our contract.? It sold quickly and yielded a nice profit which equated to 37% IRR and a 1.53 equity multiple in under 3 years (calculation shown below).
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THE LATEST NEWS FROM SPARK
Our operational partner, Progressive Properties of Greenville, got right to work on our two new acquisitions.
Their efforts are critical to the exceptional property operation which allows Spark to provide consistent and strong returns to our investors.
The day after close at the Townes @ Silos, the PPOG team was on-site and installed 70 sets of mini-blinds, 10 refrigerators, and 10 washer dryer units in the 10 homes that make up the Silos investment.
We are pleased to report in less than a month, we have leased 3 of the 10 units and have strong activity from other potential resident prospects.
Less than one month after close, Townes @ Wofford Pine is almost FULLY LEASED with 24 of the 26 units occupied or pre-leased. This again is phenomenal work by PPOG.
In addition, we have installed privacy fences at all duplexes and will soon install a dog park which will be a big value add to the TWP community.
We will continue to look for other new build BTR communities for sure. But we also see more existing properties coming on the market as the delta between seller expectations and buyer realities on price continue to narrow.
Our geographic market is Greenville County and within this local home market, we will consider all types of residential opportunities - large or small, new or existing.
We hope to have at one more investment opportunity before the end of the year.
领英推荐
This Month’s Newsletter
Once again, we’re delighted to offer educational content about multifamily investing to you through Inner Spark. Much of this content deals with the ever evolving multifamily market. After several boom years, we are entering a new phase of the economic cycle. In this edition, you’ll find:
Spark on,
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Navigating the Risks of Cash Overweight
John Nersesian discusses the implications of the Federal Reserve's interest rate hikes on investment strategies. With interest rates at their highest in two years, many investors are attracted to the safe returns from money market funds, treasury bills, and CDs. However, Nersesian warns that holding too much cash can lead to missed growth opportunities, inflation erosion, and lack of market protection.
While cash is useful for emergencies and short-term obligations, Nersesian highlights the risks of inflation reducing purchasing power and the lack of buffer against equity market volatility. He advises that longer-duration fixed-income assets can offer higher cash flow and capital gains to offset downturns. Financial advisors should help clients understand that volatility is the cost of potential higher returns and that extending the investment time horizon can reduce the probability of negative returns.
While Nersesian comes from Wall Street and deals in the financial markets, many of his comments are applicable for real estate investments. While parking cash in money market instruments or CDs paying 5% may provide higher cash flow in the near term, it might also result in missing the higher long term returns real estate can provide.
Bottom line for each investor: It's all about finding the right portfolio allocation for you and your unique situation.
Click the link to read the whole report.
The Super Rich and Family Offices Are Changing Real Estate Capital Markets
High-net-worth individuals and ultra-wealthy family offices are reshaping commercial real estate (CRE) capital markets by leveraging their substantial fortunes, ranging from $150 million to $150 billion, to purchase distressed assets and secure favorable financing deals. This shift has intensified as institutional capital declines, driven by factors such as low interest rates, tax cuts, and an increasing number of billionaires. These family offices are now leading investment bids, often competing with major private institutions, and are using their wealth to invest directly in real estate, bypassing traditional private equity routes.
Over the past 18 months, high-net-worth families have been the most active buyers in individual assets. This trend is evident in significant purchases like the acquisition of a 40-story office tower at 1330 Avenue of the Americas by an investor consortium for $320 million. Wealthy families are now competing head-to-head with large private institutions such as Blackrock and Apollo in debt and equity financings. This phenomenon highlights a new era where these families utilize their substantial resources to gain control over prime real estate, often achieving attractive deals due to their liquidity and swift decision-making capabilities.
Perhaps the ultra-wealthy are on to something here?
Click the link to read the whole article.
Dear Consultant: Will BTR Rent Growth Outpace Apartment Rent Growth Over Time?
According to John Burns Research and Consulting, build-to-rent (BTR) properties are positioned to see higher rent growth than apartments due to several factors. BTR supply is considerably lower than apartment supply, leading to less competition and enabling higher rent increases. BTR tenants tend to stay longer, driven by factors like family stability, job stability, and higher incomes, making them less price-sensitive and less likely to move compared to apartment tenants. Additionally, the high cost of homeownership keeps many potential buyers in the rental market, further supporting BTR demand.
Despite an influx of new BTR supply in some markets, the overall supply remains a fraction of that for apartments. For instance, in Indianapolis, there are 7,500 apartments under construction compared to just 300 BTR units. This discrepancy highlights BTR's competitive advantage. Moreover, with entry-level homeownership costs being significantly higher than BTR rents, many households are driven to rent in BTR communities. Over time, demographic trends and affordability issues are expected to sustain higher rent growth for BTR compared to apartments.
Happy to see the Spark investment thesis about the strong long term value of new build BTR product is confirmed by a recognized market data consultant firm.
Click the link to read the whole article.
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