Tuesday, October 6, 2015

How A Sold Windsor Multi-Family Portfolio Affects You

For those of you that either own rental properties, or just generally follow the real estate industry in your region, you have surely noticed the froth of the market over the last several years.  

With the continuation of historically low interest rates, investors of all sorts have been searching for returns in different asset classes and that has resulted in a hard charge into multifamily real estate.  

With this increased demand, prices have been rising and cap rates (click here to learn more about a similar concept) have been compressing. 

This seems to have come to a head this summer as Boardwalk REIT (Real Estate Investment Trust) has agreed to sell their Windsor multifamily portfolio to Skyline Apartment REIT.  This transaction turns Skyline into the dominant Landlord in the region with close to 2000 units.  Of note to market observers is the reported cap rate of 5.43% or $80,800 per unit.

Illustration By Chloe Cushman/National Post

Takeaways to Note From This Deal:

  1. Cap rate compression.  This is a new benchmark for the multifamily sector in Windsor as cap rates have never been this low.  This has major repercussions for the market as Sellers will try to adjust sale prices to reflect this favorable comparable.  Back in 2010, it was common place to see cap rates in the range of 10%.  Now those came with higher vacancy rates and a more difficult financing environment, but is telling in how far things have come in the last 5 years.
  2. Low interest rates continue to drive asset prices up as investors can still make money at these cap rates when they can borrow at less than 3% interest rates.
  3. Multifamily is considered a safe haven asset class, and as such, commands a premium relative to comparable properties in other sectors of Commercial real estate.
  4. Ability to finance multifamily properties remains robust, even as cap rates have compressed.
  5. Skyline is making a large bet on Windsor and must be bullish on the region long term, with regard to employment, populations growth, etc.
  6. Finding large multifamily properties for individual investors will become more and more difficult as the market is increasingly controlled by REITs such as Skyline and Timbercreek (to name a few in the Windsor market).
  7. There could be a pushback from Buyers at these cap rates as they view the market as priced for perfection and therefore higher risk.
What do you think readers? What are your views regarding this transaction and how it pertains to the Windsor multifamily market?

Russel Lalovich
Office: (519) 966-0444
Cell: (519) 995-5620

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