The Impact of Unicorns on Commercial Multifamily Real Estate

A Properly Balanced Real Estate Portfolio True, returns from owning multi-family rental properties can be high, but the highest overall returns can be obtained only after a careful assessment of risk and with a well- designed portfolio of properties. The stability of the return from each property is key to the performance of the package. The best approach is to add properties only after considering how they balance others in the portfolio, in order to spread the long-term risk and increase returns. Avoiding Vacancies – and Turnover The biggest risks of all: vacancy and turnover. An unoccupied unit brings no return, whatever its assessed valuation. Potential causes of vacancies should always be kept in mind, and a mix of property types in one’s holdings can mitigate the consequences inherent in the instability of the real estate market. Class “A” Characteristics For residents of Class “A” luxury complexes, prime location, and amenities are essential. “A” Tenants tend to be unaffected by the ups and downs of the markets, and  to be reliable in payment of rent. However, stable, high rents do not necessarily translate into high returns; actual returns can be low because of the substantial maintenance and renovation costs the investments requires. Other factors to consider:  new or newly-renovated complexes nearby, or conversely, the potential decline of the neighborhood might lead high-paying tenants to flee, leading to a re-evaluation of the worth of one’s holding. All this means that even a somewhat lower return can be viable as long as the units are continuously occupied Class “B” Characteristics Class “B” developments constitute the bulk of rental housing. A “B” tenant may be credit- worthy and looking for a lower price unit in a desired neighborhood, or could be  a less-credit-worthy tenant desiring a better complex. The property may be in an “A” location, but with much deferred maintenance and a dated design.  Upgrading and refurbishment of the property implemented over time should be part of the business plan, in the end can yield excellent returns to the portfolio. However, current tenants are likely than not to generally changing neighborhoods; however turnover may be a challenge during up and down cycles. Credit-worthy tenants usually continue...

As traffic is projected to increase in coming years, developments near transit hubs have become increasingly attractive to intrastate rail transit, including the largest high-speed system in the US. The variety of shops and the availability of transit favor multifamily projects. The L.A. County Metropolitan Transit Authority (LACMTA) operates bus, light rail and subway services and is the third largest transit agency in the country. The scale of development ranges from small neighborhood centers around the stops at the Expo line, to the mammoth convergence of transit at Union Station. Many Opportunities Exist The wide variety of stores appeal to the regular passerby. Theaters and other entertainment venues find customers at the hubs, too. Empty office complexes in the suburbs have lost many of their tenants to new facilities near transit stops. Apartments with access to shopping and transit are particularly desirable for Millennials and, in metropolitan Los Angeles, are located in the downtown areas of Long Beach, Hollywood and L.A. itself. The Pasadena area – stops like Fillmore, Del Mar and Memorial Park – is especially interesting because Amtrak’s Surfliner service to San Diego is due for expansion, and the promised high-speed link to San Francisco will be routed near there. But there are many transit stops in lower density areas as well, and these offer potential for upgrading, or even replacing, adjacent properties. What used to be a strip mall can be transformed into a mixed-use development, with offices, high-end stores, restaurants and theaters. Attracting the Millenials The preferred lifestyle for Millenials appears to be very different from that of the Boomers. Rather than an isolated house on an acre 30 miles from a central city, young adults today like closer-knit communities, with more opportunities for social interaction and amenities nearby. They purchase bicycles and short-range electric vehicles, and generally appreciate a more casual lifestyle. They tend to stay longer in apartments, waiting to start families and in preparation for buying a house, saving to reduce the mortgage. But even when they own, they like to have their friends around. Changes in the office environment have led to more flexible working hours and more mobility. Many younger workers perform a substantial part...

When most people think of real estate investing, they think of buying a property on their own and making money off leasing or renting it to other people. However, there is an alternative way of looking at real estate that is much bigger than traditional real estate investing- this bigger picture in real estate is called real estate syndication or passive investor real estate, and it’s an excellent option for people looking to make a big real estate investment with a limited amount of responsibility.* So, how does real estate syndication actually work? In real estate syndication, many owners get together and pool their resources in order to purchase real estate. This property is usually much larger or bigger than any one investor would purchase on his or her own. There are many benefits of real estate syndication, and its rewards are clear as more and more investors opt for this crowdfunding method of real estate investing 1. Lower Financial Risk Most Syndication are set up with a general partner and passive partners. The management risk in the investment, thus, is with the general, however the general partner gets to use collective sum other people’s money for the investment. The passive investor only invested a limited amount, and their greatest risk is losing their original investment. 2. Greater Knowledge Like the saying goes – two heads are better than one. And, in the case of real estate syndication, real estate investors get to take advantage of the fact that they can rely on the knowledge of a group of investors, and not just the knowledge of one. Owners in real estate syndicates are often able to take advantage of the expertise of people who come from a wide-range of backgrounds, which means they can make smarter decisions with financing and managing the property. 3. More capital Upfront With more investors, there is more capital or money available upfront, since there are many accredited investors involved. This means that a bigger payment can be put down on properties from the beginning, yielding lower monthly payments, as well as more available money for rehab, upgrades, and maintenance. 4. Less Involvement Because a real estate syndication consists...

Urban Areas in California Are Evolving In real estate, first movers define the market. By the time you read reports on what’s trending, it is often already too late. Reports involving US census data along with demographic projections issued by the state of California provide a a data-driven picture of how urban areas in California are evolving, particularly in the greater Los Angeles metro area. Understanding the real estate implications of those changes can provide significant value in terms of determining which income generating properties are best positioned to perform in the new environment. Taking a proactive approach to real estate investing offers many benefits beyond the financial, such as having better leverage in future deals and earning a reputation for being right. No one can see the future, but investors who have the better models of how the market is changing will have a distinct advantage. Trend 1: The End of Booms Right now, 15 percent of the population is 65 or older. By 2030, it will be more than 20 percent. Investors have already cornered a majority of the best deals for real estate syndication and investment around properties concerned with healthcare and services for the aging. What people may not realize is that the replacement birth rate in the US is low but remains steady. There has even been an increase in birth rates in recent years. This will put an end to generational bubbles like the Baby Boomers for the foreseeable future. The coming trend in real estate investment through 2050 will be greater marketing to the swelling buying power of younger professionals who are flocking to inner cities. Trend 2: The New Work Force Hispanics became the majority in California in 2014, but what matters most is their ages. The California Department of Finance projects that by 2030, whites in California who are aged 65 or older will number 4.1 million, while only 3.8 million will be under 25. In comparison, Hispanics aged 65 or over will number 2.2 million and those aged 25 or under will equal 7.2 million. By 2050, adults of working age in California will be predominately Hispanic. To be successful in reaching these working...