Time to Sell! Maximize Your Value!

What should I share with prospective purchasers?

What documentation will help maximize the market price?

Whether you are selling multifamily, office or other investment property consider what documentation is helpful in maximizing your price in the marketplace.

To begin –  answer this question: What is a Buyer looking for in a purchase? The Buyer is going through the following thought process:

  • Are the rents at the maximum levels according to the market?
  • What are the stabilized past three years of income and vacancy loss?
  • What are the stabilized past three years of expenses?
  • Is there any deferred maintenance? A third party property inspection is usually ordered for this.
  • What capital improvements or replacements have recently been done?

A coherent story, backed up with reasonable numbers, goes a long way to reeling the highest offer in.

It is vital to have capital improvements “washed” out of the expenses because if one time major cash items are mixed in with expenses it will ultimately understate your net operating income. After all, that is what a Buyer is really purchasing from you.  A coherent story backed up with reasonable numbers goes a long way to reeling the highest offer in.

How does the buyer regard the annual stabilized income and expense information?

A simple way to remember the income approach to valuation is by the simple formula for determining the rate of capitalization often called “cap rate.” Income= (Rate) X (Value).

A buyer is looking for a desired rate of return.

A Buyer (and an appraiser hired by a lender) is looking for a desired rate of return. Typical cap rates are 5.5% – 8% or more depending on many different market circumstances. To solve for rate, divide the net operating income by the value offered.  It is important that the net operating income does not include mortgage interest or principal or depreciation which is purely a tax number. It is obvious that the higher the net operating income (NOI) the higher the price. The sales process involves communicating what the present net income scenario is as well as conveying what the potential for the property is. Clear information upfront will go a long way to getting the highest possible offer.

Clear information upfront helps get the highest possible offer.

Dan Roseliep, CPM

Dan Roseliep, CPM

Vice President, ALTUS Commercial Real Estate
Email Dan

Direct:  608-234-4482

Who is moving in to all these apartments?

Everyone sees the explosion of new apartment properties these past couple of years. I often get asked: Who is filling these up? That is a good question, and the answer isn’t so simple. First of all the market is fragmented by housing type. In Madison for instance there is student housing, senior housing, pure market rate and affordable. It is not always possible to drive by any of these and know what type it is.

The economy has improved quite a bit since development peaked in the 2007 season. Energy prices recently have seemed to add to the improving economic picture. Unemployment, which has stubbornly stayed high, is showing some improvement finally. The recent picture of the multifamily market has been a good one. Overall home ownership which peaked at 69% before the Great Recession is at a low 65% today. National vacancy rates are below 5% and the cost of capital remains at historic lows.

There are two segments of the market which will receive the most attention from developers and investors. The first is the millennials, or as they are referred to sometimes the echo boomers. There is finally some movement from the parents’ house to the first apartment along with other employment related factors. The second hot place to focus is the senior market. Downsizing and retirement as well as health related moves will solidly drive this cohort for many years to come.

The future looks good for apartment buildings. Location and job growth remain high on the list of things to look for when purchasing. Luxury Class A units will run their course sooner so the rehab and value add plays should be the best investment types to look at. It goes without saying that affordable housing of all categories will remain strong as it has since the end of World War II.

Dan Roseliep, CPM

 

Dan Roseliep, CPM

Vice President, ALTUS Commercial Real Estate
Email Dan

Direct:  608-234-4482