​It is extremely critical to be sensitive to exit cap rates and projected price per unit values, and understand the local market and its variables, Michael Flaherty of L5 says in this EXCLUSIVE.

EL DORADO HILLS, CA—It’s no surprise that good deals are not so easy to find in the current US multifamily market. That’s where strategic positioning comes in, both from an acquisition standpoint and also a capital improvement position.
One company that has a handle on this type of strategy is L5 Real Estate Investments. L5 is a privately held investment firm focused on value-add multifamily properties that provide high-yield, passive cash flow and long-term capital appreciation for its investors through strategic acquisition, renovation and asset management.

The firm currently has in excess of $380 million of assets totaling 4,100 units under management in seven states. In this exclusive, Michael Flaherty, founder and CEO of L5 recently discussed investor sentiment with regard to multifamily properties, the challenges of locating value-add investments and how to improve properties for better cash flow.

GlobeSt.com: How is the multifamily market looking these days from an investor standpoint?

Flaherty: L5 Investments focuses on value-add apartment acquisition opportunities and we are finding that we have to be more patient and prudent in our search as good deals are certainly not easy to find.  The opportunities are out there, they are just more challenging to find compared to a few years ago. Regardless, we remain believers in the sector–we are largely seeking long-term holds and are flexible on exit strategies, as a result, we remain bullish on this sector’s continued strength into the future. People will always need safe, updated, competitive housing choices.
Additionally, throughout this run, we continue to be laser focused on providing our private investors with consistent, attractive returns. With that said, we have had to revise and alter our structure and criteria to continue to realize a favorable ROI as cap rates flatten out and interest rates slowly rise.

GlobeSt.com: Is it harder to find value-add properties now than it was last year? Why or why not?

Flaherty: It has always been hard, but it is certainly more challenging now. I think the main reasons for that are more players in the market and some buyers may have become a bit too aggressive as far as what they will pay. It is important that our investment decisions are conservative and make sense financially based on market fundamentals and future projections for any given asset. L5 has been and will continue to be conservative in what we buy, and we don’t let emotions drive us into a deal that just doesn’t pencil. We are also not under any pressure to buy a certain quota within a given timeframe–if we find a few deals great, more is great too, but we have the benefit of being patient and sitting on the sidelines ready to jump in when its right.

GlobeSt.com: What are the best ways to make an apartment community a better cash-flowing asset?

Flaherty: Our goal for acquiring any multifamily asset is adding smart value and buying for long-term cash flow. As a result, the most important way value can be added is buying right. It is extremely critical to be sensitive to exit cap rates, projected price per unit values, and understand the local market and its variables like jobs, mass transit, local amenities, schools, etc. Lastly, it is important to have the right strategy from a capital improvement position to ensure that a planned rehab is completed on time and on budget while still matching the tenant demand on a micro-market/local level.

GlobeSt.com: What is your outlook on this sector for the remainder of the year?

Flaherty: As a buyer, we are ideally looking to strategically acquire two or three more communities this year. We see that demand in suburban locations near growing job centers is strong. Compared to higher priced urban products, our more affordable rents and competitive communities continue to be attractive solutions to rising rents and market affordability concerns. As a result, our portfolio has continued to increase in occupancy.
Finally, with cap rates and pricing per unit leveling off a bit and interest rates on the rise, we do see signs of easing in the market but are taking that into consideration when we underwrite potential acquisitions. The rising cost of single-family homes, good economic indicators, population growth and an overall trend for Millennials choosing to rent as opposed to owning a home all bode well for ownership in the apartment sector.

To read this article on Globest.com please CLICK HERE

Lisa Brown
Lisa Brown is an editor for the south and west regions of GlobeSt.com. She has 25-plus years of real estate experience, with a regional PR role at Grubb & Ellis and a national communications position at MMI. Brown also spent 10 years as executive director at NAIOP San Francisco Bay Area chapter, where she led the organization to achieving its first national award honors and recognition on Capitol Hill. She has written extensively on commercial real estate topics and edited numerous pieces on the subject.
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The unexpected is business as usual in New York real estate, where priorities and plans can shift on a dime. But one development firm I know of recently made a move that had veteran industry players taking note of a major change we’re seeing in the industry—it delayed the official opening of a new apartment building to install more amenities. It’s just one more way demographic shifts are having profound effects on the multifamily housing market. The demand for amenities—everything from luxury dog spas to Internet-connected collaborative workspaces—is creating a real estate race among well-capitalized developers of next-generation apartment buildings. The demand by Millennial consumers for so-called “smart buildings” with a trove of on-site perks is driving a reinvention of multifamily stock. Investors need to recognize these evolving demographics and be responsive to a new wave of demands.

A demand for amenities Amenitization is one of the new keywords for investors in the red-hot multifamily market. It reflects the fact that, though the square-footage of an average apartment unit may be smaller, consumers are still spending more time within the building in spaces that often include movie theaters and other social areas.

The race for developers to out-do one another with amenities owes partly to the age of consumers. During Capital One’s fourth annual survey at ALM’s RealShare Apartments Conference last fall, 72% of real estate executives predicted that technology-savvy Millennials will have the greatest impact on multifamily demand this year, followed by Gen-Xers (16%) and Baby Boomers (12%).

The waning of the big suburban house This is not to say that other age groups aren’t having their impact. Developers recognize the influence of older Americans, whose housing preferences are also disrupting multifamily.  The share of the American population over age 65 will shift to 21 percent from 13.7 percent by 2050, according to Real Trends: The Future of Real Estate in the United States. The report, sponsored by Capital One, was conducted by the MIT Center for Real Estate and the Urban Economics Lab.

The Real Trends report reveals that today’s older consumers are demanding higher quality housing and retirement communities than their predecessors. In addition, many Baby Boomers and empty-nesters don’t want to own enormous suburban houses anymore. They increasingly want to be in revitalized city centers and they are trading square footage to be close to the cultural venues and restaurants that urban cores have to offer.
The Real Trends study also shows that demographic shifts are ushering in a new era of advanced multifamily housing – from sustainable building materials to innovative layouts – and construction companies and real estate investors are adapting to these new market realities.

New tax law is fueling the multifamily market In addition to the interest in urban centers, new tax law is also presenting many opportunities for investors. New Federal tax law will surely impact multifamily developments – mainly in coastal markets. Although most of the tax issues have yet to be worked out, home ownership will become less attractive largely due to the elimination of certain deductions. With cheap financing available, investors are betting on increased multifamily demand.

The MIT report details other factors that are stoking demand for new multifamily housing. The global economic crisis of a decade ago slowed down housing construction. Experts predict that, over the next decade, the regular demand for new housing, plus filling the vacuum created by the recession, could require more than 1.65 million units a year. Indeed, America would seem to be at the beginning of an extraordinary multifamily housing boom.

Multifamily construction will also get a boost from new types of architectural designs specially aimed at single-parent consumers. According to the Capital One/MIT report, more than a quarter of American children live in single-parent homes, usually headed by a mother. An additional 15 percent of children live with one parent and a second-marriage spouse. Now more than ever, single mothers juggling careers with childcare are looking for multifamily buildings that offer daycare, babysitting, healthy dining, and even homework assistance.

Shaping the future of the multifamily market Plenty of new multifamily housing, infused with innovative amenities, has already been built in urban centers. Cities continue to become safer and transit upgrades are drawing more consumers downtown. Corporations, recognizing urban cores for their concentration of intellectual capital, are continuing to locate their headquarters in cities, reversing a decades-old trend of building sprawling corporate campuses in suburban communities.

Although it is true that a geographic shift to cities has resulted in compressed cap rates, there’s nevertheless a certain amount of risk to looking elsewhere, including tertiary markets. Investors may tolerate slightly lower returns in urban cores because investments in new apartment developments there are more stable.

The changing face of the American city, a steady demand for building amenities, and a robust economy are attracting multiple generations to a new class of multifamily housing. As technology continues to evolve both amenities and building practices, it’s an exciting and important time to be involved in multifamily. Which is why now more than ever it’s crucial to have a financial partner able to navigate shifts in the multifamily landscape.

Benjamin Stacks is SVP of Capital One Commercial Real Estate. The views expressed here are the author’s own and not that of ALM.

CLICK HERE to read this article on Globest.com

A joint venture of L5 Investments and BH Equities has sold Huntington Glen Apartments in southwest Houston after making improvements during its three-year ownership.

​Austin-based GVA Real Estate Group purchased the 364-unit complex, which consists of 20 buildings on nearly 10 acres at 12023 Bissonnet near Keegan Road. The property was built in 1982.

"Our partnership completed a strategic value-add capital program immediately after acquiring the asset which included addressing deferred maintenance issues, interior unit upgrades, enhancing landscaping and overall aesthetics, and updating community amenities," L5 Investments founder and managing partner Michael Flaherty said in an announcement.

L5 Investments is pleased to announce the recent, successful closing of the Raleigh Apartments – a value-add investment opportunity.  The Raleigh is a 52-unit apartment complex, well located in Burien, Washington - a Seattle suburb, 12 miles south of downtown Seattle.  The property was purchased for $8,200,000 and is 98% occupied. The Raleigh will be another strong performing asset for our growing portfolio.

The property stands to benefit from our proposed $661,000 rehab program which will include updating key areas including flooring, cabinets, lighting, appliances, and adding in-unit washers and dryers. The scope of work will add immediate value, update the property for today’s tenant needs/interests, enhance our ability to better market the property, and improve the property aesthetics for the short and long term.  More importantly, it will enable us to achieve higher rents and maintain high occupancy.
  
We continue to remove obsolescence from the rental market with communities that offer contemporary housing and services that meet the needs of today’s renter.  Whether it is enjoying a coffee in one of our cyber cafés, or relaxing by one of our resort-style swimming pools, we work hard to provide the upscale amenities that many would only expect to find at higher-priced communities.
This increase in rents results in an estimated property value increase of approximately $800,000 - $1,000,000.

SEATTLE—For apartment renters, it can literally pay to renew their existing leases. Zillow said Friday that market-rate rents increased at a faster pace year over year than did rents for tenants who renewed. The firm analyzed 2015 rent data from the US Census American Community Survey, the most recent data available.

The Y-O-Y increase for renters who renewed in ’15 was 3.6%, compared to a 5.6% rise in rent for beginning a new lease. Dollar-wise, that means a renter who had moved in the past year paid an average of $329 more each month than a renter who had lived in the same place for five years or longer.
In some markets, the gap was even greater. Zillow estimates that Bostonians who stayed in the same rental for five or more years saved as much as 86%, which translated to $8,979 in annual rent payments over the five-year period.

Boston renters also faced the biggest difference between annual market rate rent increases (10.5%) and rent increases for renewing (4.3%). Not far behind in terms of the dollar amount was San Francisco, where renters saved an average of $8,860 over five years for staying in place.
 
On a percentage basis, the market-rate increases were highest in San Francisco at 12.9% and in Denver at 14.1%. Renters in the New York/New Jersey metro area saved $7,376 during the five-year period by renewing, although on a percentage basis the gap between market rate and renewing was close to the national average.

The number of renter households across the US has risen by four million over the past five years to reach 43 million, Zillow says. The majority of recent household formation occurred on the renter side rather than on the homeowner side, due partly to Millennials reaching the age to move out but not having enough savings to buy a home.

Young adults are also renting longer than ever before buying, says Zillow. The savings of renewing in place could be put toward a down payment on a home, seen as the biggest obstacle toward buying, the firm says.
“Renters have a decision to make almost every year: do they stay in the same place, or should they look for a new unit?” says Svenja Gudell, chief economist at Zillow. “With the country in the middle of an affordability crisis, it’s important for renters to understand how much they can save if they renew their lease instead of finding a new rental.

“Nationally, rental rates have slowed and the savings from renewing are not as significant for renters today,” Gudell continues. “However, in some of the hottest rental markets, where rents are still rising aggressively, continually renewing a lease can mean saving thousands of dollars.”
In related news, Apartment List said Friday that rents nationally grew .05% during June, with 92 of the 100 largest US cities posting Y-O-Y growth. June’s increase over May levels was in line with the monthly growth that the firm has seen over the course of 2017.
 
Nationally, Y-O-Y growth now stands at 2.9%, surpassing the 2.6% annual in the year-ago period. Apartment List notes that the last month in which year-over-year growth outpaced the level from the year prior was December ‘15, although Y-O-Y growth still lags the 3.5% pace seen in June ‘15.

To read this article at Globest.com click HERE

WASHINGTON, D.C., June 12, 2017 – Delayed marriages, an aging population and international immigration are increasing a pressing need for new apartments, to the tune of 4.6 million by 2030, according to a new study commissioned by the National Multifamily Housing Council (NMHC) and the National Apartment Association (NAA). It’s important to note that:

• Currently, nearly 39 million people live in apartments, and the apartment industry is quickly exceeding capacity;
• In the past five years, an average of one million new renter households were formed every year, which is a record amount; and,
• It will take building an average of at least 325,000 new apartment homes every year to meet demand; yet, on average, just 244,000 apartments were delivered from 2012 through 2016.

Based on research conducted by Hoyt Advisory Services and commissioned by NAA and NMHC,  the data includes an estimate of the future demand for apartments in the United States, the 50 states and 50 metro areas, including the District of Columbia. For the purposes of this study, apartments are defined as rental apartments in buildings with five or more units. The data are available on the website www.WeAreApartments.org.

The increased demand for apartments is due in large part to:

• Delayed house purchases. Life events such as marriage and children are the biggest drivers of home ownership. In 1960, 44 percent of all households in the U.S. were married couples with children. Today, it’s less than one in five (19 percent), and this trend is expected to continue.
• The aging population. People ages 65-plus will account for a large part of population growth going forward across all states. The research shows older renters are helping to drive future apartment demand, particularly in the northeast, where renters ages 55-plus will account for more than 30 percent of rental households.
• Immigration. International immigration is assumed to account for approximately half (51 percent) of all new population growth in the U.S., with higher growth expected in the nation’s border states. This population increase will contribute to the rising demand for apartments. Research has shown that immigrants have a higher propensity to rent and typically rent for longer periods of time.

“We’re experiencing fundamental shifts in our housing dynamics, as more people are moving away from buying houses and choosing apartments instead. More than 75 million people between 18 and 34 years old are entering the housing market, primarily as renters,” said Dr. Norm Miller, Principle at Hoyt Advisory Services and Professor of Real Estate at the University of San Diego.  “But renting is not just for the younger generations anymore. Increasingly, Baby Boomers and other empty nesters are trading single-family houses for the convenience of rental apartments. In fact, more than half of the net increase in renter households over the past decade came from the 45-plus demographic.”

“Apartment rentals are on the rise, and this trend is expected to continue at least through 2030, which means we’ll need millions of new apartments in the U.S. to meet the increased demand. The western U.S. as well as states such as Texas, Florida and North Carolina are expected to have the greatest need for new apartment housing through 2030, although all states will need more apartment housing moving forward,” said NAA Chair Cindy Clare, CPM. “The need is for all types of apartments and at all price points.”

There will also be a growing need for renovations and improvements on existing apartment buildings, which will provide a boost in jobs (and the economy) nationwide. Hoyt’s research found that 51 percent of the apartment stock was built before 1980, which translates into 11.7 million units that could need upgrading by 2030. The older stock is highly concentrated in the northeast.

“The growing demand for apartments – combined with the need to renovate thousands of apartment buildings across the country – will make a significant and positive impact on our nation’s economy for years to come,” explained NMHC Chair Bob DeWitt. “For frame of reference, apartments and their 39 million residents contribute $1.3 trillion to the national economy. As the industry continues to grow, so will this tremendous economic contribution.” 

Other highlights from the report include: 

• Demand is expected to be especially significant in Raleigh, N.C., with a 69.1 percent increase in new apartment units between now and 2030, Orlando, Fla. (56.7 percent), and Austin, Texas (48.7 percent). Also notable, the demand in the New York City metro area will call for an additional 278,634 apartment units, Dallas-Ft. Worth, Texas (266,296 new units), and Houston, Texas (214,176 new units).
• Propensity to rent is higher in high-growth and high-cost states.
• Hundreds of thousands of new rental units will be needed by 2030 in states such as California, Georgia, Arizona, Florida, North Carolina, Nevada, New York, Texas, Virginia and Washington.

In conjunction with the study’s release, the website www.WeAreApartments.org breaks down the data by each state and 50 key metro areas. Visitors can also use the Apartment Community Estimator – or ACE – a tool that allows users to see the trends in their state or metro area to determine the potential economic impact locally.

For more information, visit www.WeAreApartments.org. 

Read the full article here: http://www.nmhc.org/News/US-Needs-4-6M-New-Apartments-by-2030-to-Keep-Pace-with-Demand/

L5 Investments is pleased to announce the recent, successful closing of the Carlyle Apartments – a value-add investment opportunity.  The Carlyle is a 436-unit apartment complex, well located in Shawnee, Kansas – a highly desirable submarket in Kansas City.  The property was purchased for $27,550,000 and is 95.41% occupied.  The lender’s appraisal value was $27,900,000 with a stabilized, post renovation value of $38,800,000. The Carlyle will be another strong performing asset for our growing portfolio.

This acquisition increases our multifamily holdings in the Kansas City MSA to 1,090 units (soon to increase by an additional 434 units by late June).

The property stands to benefit from our proposed $5,450,000 rehab program which will include an upgraded leasing and fitness center, pool and sundeck, exterior upgrades, an upgraded interior unit technology package, improved landscaping, new signage, and additional exterior lighting.  The building interiors 294 of the 436 (67%) apartment units will be fully upgraded over the first three years of ownership.  The upgraded units will position us to increase rents and consistently improve the tenant base.  Initially, these upgraded units will receive a proposed rent increase of approximately $151/month for upgraded units.  The scope of work will update the property for today’s tenant needs/interests, enhance our ability to better market the property, and improve the property aesthetics for the short and long term.  More importantly, it will enable us to achieve higher rents and occupancy.
  
We continue to remove obsolescence from the rental market with communities that offer contemporary housing and services that meet the needs of today’s renter.  Whether it is enjoying a coffee in one of our cyber cafés, or relaxing by one of our resort-style swimming pools, we work hard to provide the upscale amenities that many would only expect to find at higher-priced communities.


Please feel free to contact us should you have any questions on our properties or would like more detail about L5 Investments and our services.

MCLEAN, VA—Trading a rental for the dream of homeownership? Not so fast, according to the latest Freddie Mac survey of renters. An even larger majority of those surveyed said they expect to rent their next home: 59%, up from 55% six months ago.

Not surprisingly, the biggest gains in this cohort were seen among younger Millennials, for whom homeownership may be a foreign concept. Seventy-three percent of those surveyed said they planned to rent their next home, compared to 64% in September 2016. Another group that registered a preference for staying in the renter pool was suburban households, up from 48% six months ago to 57% in the most recent Freddie survey.

There were still renters among those surveyed for Freddie who aspire to homeownership, but fewer than last time.  The percentage of renters who expect to eventually own declined to 41% from 45% in the previous survey. Along similar lines, the number of renters who said they were working toward homeownership fell from 21% in September to 15% this time around.

Freddie’s latest survey also reveals a preference for living in urban areas even if it means moving into a smaller home. Seventy-five percent of the renters surveyed say they would consider downsizing in order to live in an urban area, with half of those saying they are either “very willing” or “fairly willing” to downsize.

While thoughts of downsizing may imply belt-tightening, that doesn’t appear to be the case among respondents to the latest survey, which found that more renters feel pretty good about their financial situation.

Forty-one percent of renters now say they have enough money to last beyond each payday, up from 34% this past September, while those who said they couldn’t afford essentials fell from 20% to 14%. Those saying they had enough to cover expenses from payday to payday was relatively unchanged at about 45%.

The more positive outlook on personal finances hasn’t really moved the needle on relocation plans, though. Fifty-five percent of all respondents, and 60% of those ages 35 to 49, said they liked where they live and didn’t plan to move if their rents rose.
​
“It would appear from our new survey that renters today feel better about their finances, like where they are living, and view renting favorably,” says David Brickman, EVP of Freddie Mac Multifamily. “This is consistent with findings from earlier surveys that show a steadily growing number of renters have a positive view of renting.”

Such favorable fundamentals for the long-term apartment outlook help underpin the GSE’s outlook for multifamily originations this year. Freddie said this past Friday that lending volume in the sector could increase by 3% to 6% in 2017, depending on movement in the 10-year Treasury rate.

If the 10-year stays in the range of 2.5%, multifamily volume is estimated to grow to around $295 billion for the year. Conversely, growth could slow to 3% if the 10-year rises more abruptly.
​
Observes Steve Guggenmos, Freddie Mac Multifamily VP of research and modeling, “The multifamily market is poised for growth and record origination volumes in 2017 under either interest rate scenario. This fact underscores the underlying strength of the multifamily sector thanks to a strong labor market, demand from new households and steady absorption rates.” As a result, he adds, “a moderate rise in interest rates alone will not be enough to cause any significant disruption to the multifamily investment market.”


Read the article on Globest.com: http://www.globest.com/sites/paulbubny/2017/04/11/more-renters-expect-to-keep-on-renting/?kw=More%20Renters%20Expect%20to%20Keep%20On%20Renting&et=editorial&bu=REM&cn=20170411&src=EMC-Email&pt=National

The Panoramic is a mixed-use project across the street from the Twitter headquarters.SAN FRANCISCO—Demographics and living preferences are shaping the multifamily sector. The number of millennials (75.4 million) has now surpassed the number of baby boomers (74.9 million). As the largest generation, millennials will be a major force in future housing demand due to sheer numbers and lifestyle choices.
According to a Gallup poll, 27% of millennials are currently married compared with 48% of baby boomers that were married at the same age based on US Census Bureau data. Those who are seeking to purchase a home however may face obstacles, including more stringent lending requirements. According to Experian, millennials have the lowest average credit score of all the generational cohorts.

Baby boomers, on the other hand, do not want to be tied down to larger, underutilized suburban homes as they age. As a result, they are downsizing to smaller rental quarters. Baby boomers also want the flexibility that a multifamily rental can provide so they can pick up and move to be near children and grandchildren.
“Although age may be the great divide between millennials and baby boomers, housing preferences at present are not,” Larry Kay of Koll Bond Rating Agency tells GlobeSt.com.

To meet different lifestyle preferences, micro-unit apartment buildings are on the rise. The first New York City apartment building with only micro-units opened last year on the east side of Manhattan. Micro-units, ideal for youth, singles and seniors, are being designed and built in other cities such as Vancouver, Tokyo, Austin, Phoenix and San Francisco.

In 2011, the San Francisco Housing Action Coalition worked with District 8 supervisor Scott Wiener to pass legislation that allows for the construction of micro-units, also known as “efficiency dwelling units.” The legislation allows for units as small as 220 square feet comprised of 150 square feet of living space, plus a bathroom and kitchen.

One project with micro-units, 333 12th St. in SoMa, received approval which will also include affordable housing units. As a result, the property can rise 35% higher utilizing the state’s density program. Micro-units will not be the silver bullet to solve the city’s affordability problem, but have become one available housing product to improve the efficiency of land that is available for housing, according to the San Francisco Housing Action Coalition.

Another project is the second CITYSPACES micro-apartment project. The Panoramic is a dense (761 du/acre) mixed-use project also located in SoMa (across the street from the Twitter headquarters) at 1321 Mission St. With 120 studios and 40 suites in 11 stories, it has a rooftop garden, public lounges on every floor, and a ground floor cafe/lobby. The project is car free but has a City CarShare vehicle on-site, along with bike storage for residents. The project is 108,000 square feet on a lot size of 9,208 square feet.

The building includes built-in storage, stainless steel Energy Star appliances, energy recovery ventilation, engineered soundproofing, and oversized windows and city views in every unit. Sustainable materials and construction methods were used including high-efficiency lighting and low-flow plumbing fixtures, enhanced indoor air quality, laminated heat resistant glass, and double-gasketed windows, GlobeSt.com learns.

Read on Globest.com ​http://www.globest.com/sites/lisabrown/2017/03/30/millennials-and-boomers-consider-similar-housing/?kw=Millennials%20and%20Boomers%20Consider%20Similar%20Housing&et=editorial&bu=REM&cn=20170330&src=EMC-Email&pt=California