Park Thirty99, Lexington, Kentucky SOLD 2022
Well, it’s back to “normal” territory without the eviction moratorium hanging over our heads. Should be an interesting month or so as this cycles through the system but overall, we’re excited to finally have some leverage to cut our losses. In the meantime, we’re pushing as much as we can to get the rent relief for past unpaid months. It’s frustrating to hear that there is over $45 BILLION of rent relief allocated and only $3 billion has been released. Between government slowdowns and the need to have residents do their part to apply, it’s not an easy process to actually get the funds. Creativity and persistence are keys to success here – as with most things in life.
Operationally we’re continuing to see rents increase across the board with strong occupancy. The fall/winter season will see somewhat of a slowdown but we’re still in the strong part of the leasing season and it’s doing very well. I’ve pasted a link here for a great summary report by Marcus & Millichap about the future of housing.
Housing Shortage Poised to Get Worse
This ties into much of what I mentioned last week. It also helps us understand the reason folks are bidding up multifamily as the expectation for rising rents is a foregone conclusion. The key here is to remember that it’s not sustainable. While I doubt there will be distressed sales at any point in the future, there will be many sub-par returns if the buying spree slows down and investors have to actually operate their properties as a business.
DEAL UPDATE
Several of our properties performed quite well over the past six months and will be receiving distribution increases. On average we’re paying out 7% in monthly distributions with our average property less than 2 years old in the portfolio. Our highest monthly distribution is 9%. Our goal is to hit a 10% average over 5 years with the first 2-3 years typically below that target and then the latter 2-3 years in excess of that target. Unfortunately COVID and the eviction moratorium have pushed some of our projections back a few months as we deal with the associated collection/eviction loss.
On the flip side, I’m optimistic given the fact that we’ve been fully integrated with our in-house property management company for only 6 months now. The economies of scale that we expected to see, and the control of revenue and expenses, are just beginning to pay off. Building a culture of transparency, personal responsibility, and hard work are just the start. We’re going to be bridging the gap between technology and property management with work order call follow ups. Turnover is the number one expense in our business – so lower turnover is a must. A better resident experience is critical to long term success. We’re also doing things behind the scenes to connect accounting and operations – two departments that historically and tragically operate in silos. Efficient information flow and decision-making processes will allow us to get more done in less time. There’s no work life balance if you have to work 80 hours a week just to survive.
ECONOMIC UPDATE
The 10-year Treasury ended down 25bps last week. The Fed said they won’t be taking any action in the near future to stop the current growth environment. This bodes well for the lending market for at least the next 1-2 quarters. GDP grew at 6.5% as consumption services surged. There is a lack of inventory in the system – and this will most likely keep a lid on this growth rate. Construction materials are one of these issues. As those of us purchasing appliances know, we have to scour the country looking for available product. Production prices are up as well as raw materials, so it’s an inflationary environment for sure.
We’re also a little concerned about the reported apparent uptick in COVID activity around the country. While this could dampen the economic recovery, it could also threaten the lending environment as well. From a buyer’s standpoint we have to weigh the risk that something “blows up” in the market between the time we sign the PSA (purchase & sale agreement) and the closing date. Never a good thing. This is why we work very closely with our attorney to ensure that both sides are protected in a reasonable manner to accommodate any unforeseen situations. So far so good but the memory of last spring still lives on.