Multifamily Update and 2012 Outlook- L5 Investments

[Mike Flaherty]

2011 was a year of strong fundamentals for the multi-family investment sector and 2012 is anticipated to provide much of the same.  Rents, occupancies and values continue to increase across our entire portfolio as demand for apartments strengthen.  This demand is directly aligned with our strategy to invest in relatively low-risk, stabilized and value-add opportunities as supply lags, stringent loan requirements delay future homeowners, and as the Echo-Boomer generation enters the rental market.  

2011 Highlight:  Recent closing of River Oaks, a 220-unit apartment community located in Tyler, TX.  The property was acquired “off market” for a net price of $6,585,000 and was appraised by our lender (Fannie Mae) for $8,400,000 prior to closing.  Our expectations for the property are high and on par with the other assets in our portfolio.

Asset Performance:  L5 and its partners/investors have purchased Class B multi-family communities consisting of 692 total units valued at over $30,000,000 since late 2009.  As of the end of the 4th quarter 2011, the average property occupancy was 94% and rents grew an average of 3.5%, exceeding expectations.  Projections for 2012 show continuing rent growth averaging 5.2%.

2012 Outlook:  The U.S. economy, despite continued volatility, appears to be gradually regaining its footing with declining unemployment rates, moderate consumer price index (CPI) and gross domestic product (GDP) growth, and other projections pointing toward a slow, steady improvement in 2012.  However, there is still significant investment risk in many sectors along with low yields in more stable, fixed income alternatives. 

With that in mind, multi-family properties remain one of the more consistent, stable and attractive investment vehicles in the U.S. marketplace.  As supported by the articles below, the apartment market is expected to remain strong for the long term due to limited supply and demand growth as evidenced by decreasing vacancies and increasing rents in many U.S. markets:

More Good Times Ahead for Multi-Family in 2012 (Multi-Housing News,...

According to Grubb & Ellis Co.’s 2012 National Real Estate Forecast, additional growth is on tap for the U.S. multifamily sector this year, after a successful showing in 2011.

Investors Place Hopes and Money in Multifamily Housing (Daily Journ...

Apartments are clearly the most active market, primarily because investors are confident with the product type. 

Video: The 2012 Apartment Market- Can We Look Forward to Another Pr...

Jay Parsons and Greg Willet of Property Management Insider discuss a set forecasts that bode well for multi-family investors; projected National rent growth of 4-4.5%, occupancy growth of up to 0.5%, and specifically growth in Class B and C properties.

L5 Investments continues to focus on best in class asset management while remaining patient and prudent as we source new investment opportunities.  We continue to expand our target markets as new regions improve economically and as local apartment markets provide new assets that fit our investment criteria.