The Off-Market Multifamily Frenzy vs. Timeless Real Estate Investment Principles

This was my contribution to today’s class discussion in real estate finance:

Yes, it seems that only the most well-funded investment groups are taking full advantage of the current market. There are still a lot of investors sitting on the sidelines, but at some point, they will all need to realize that it still boils down to the numbers and how properties perform over the life of the holding period. Too much frenzy about “off-market” opportunities, and not enough energy spent on  considering real potential deals that are out there in this inhospitable economic environment.

I think a distressed deal is a distressed deal whether the deal is on or off the market. Even non-distressed deals can become distressed in this economic climate. Why? Because, sellers of non-distressed assets are going to have to compete with the tremendous volume of distressed assets that have–and have not yet–hit the market. The environment is bad for many sellers, especially the ones that cannot refinance for whatever reason.

Whether on the market, or off the market. All deals are competing for the same pool of investors. I think there is too much focus on finding off-market deals, and not enough energy going into considering the factors surrounding a real potential opportunity; for example, considering the fundamental basics of net operating income as it relates to an after-tax “cash-on-cash” return (the only real thing that really matters in the end is the actual cash flow that makes it into the bank). Taking the current economy into consideration, a savvy investment group knows how to step into a deal to make smart and well-informed decisions in order to achieve record revenue figures.