Unlocking Profit Potential in Saturated Multifamily Markets
With Russell Appel, CEO of The The Praedium Group , and Max Sharkansky CEO of Trion Properties, Inc. . Moderator: Asaf Rosenheim , Profimex
As interest rates remain high and economic uncertainty persists, savvy real estate investors are getting creative to unlock profits in the multifamily sector. At a recent Profimex webinar, two veteran multifamily investors shared their strategies for navigating today's saturated market.
Russell Appel, CEO of The The Praedium Group , and Max Sharkansky , CEO of Trion Properties, Inc. , painted a picture of challenges and opportunities. While rising rates have driven up borrowing costs, these seasoned investors see a silver lining for those with ample dry powder.
"Interest rates have gone up significantly over the last 24 months, It's making new deals much tougher." However, he noted that the saturated environment also means "a pipeline of opportunity for us" to acquire newly built properties during the lease-up phase.
?Sharkansky similarly sees potential in distressed assets if the economy sours further. "What we're seeing is the interest rates have caused undercapitalized owners to fall into distress, which is exactly opportunities we can take advantage of," he explained.
?Both investors emphasized the importance of a research-driven, localized approach when deploying capital in this climate. Appel's firm has been "at the forefront" of publishing research on migration patterns, fiscal conditions of municipalities, and income migration's impact on economic volatility.
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?"We've been very focused on demand and investing where there's been the most demand growth," said Appel. "At the same time, our underwriting on a deal-specific basis has accounted for supply dynamics as well."
The surrounding suburbs of San Francisco have a lot of opportunity. San Jose doesn't have nearly the issues of San Francisco and it's got a lot of in-migration." Max Sharkansky , CEO of Trion Properties, Inc.
?Sharkansky noted the divergence between supply-constrained coastal markets like California and the more business-friendly Sunbelt region. "In some of the Sunbelt markets, we've purchased at a low basis and we're not terribly affected by supply," he said.
?However, overlooked suburban areas of certain coastal markets still present opportunities according to Sharkansky: "The surrounding suburbs of San Francisco have a lot of opportunity. San Jose doesn't have nearly the issues of San Francisco and it's got a lot of in-migration."
?Managing rising operating costs is also top of mind. "You just have to be meticulous in doing everything you can to keep those expenses as low as possible," advised Appel. Sharkansky agreed, "You want to be meticulous, but you want to make sure that the properties also are not so underwritten, so razor thin that any one hiccup causes you a severe problem."
?While challenges abound, these multifamily veterans remain optimistic about prospects for experienced investors with a keen eye for opportunities. As Appel summarized: "The stresses that are building in the marketplace are going to create some real opportunities, particularly in our case, combined with all the deliveries."