December 2006
Research Perspective: Multi-Family Investments
By Jim Mayland – Research Manager
Rental Apartments Gain Favor Among Investors
Jim Mayland
Apartments continue to be a preferred product type among investors due to the combination of improving rental and vacancy fundamentals, increased influx of capital, favorable demographic trends, and job growth. A key contributing factor to the improved rental and vacancy statistics is the one thing most investors don’t like, higher interest rates. But with the rise of interest rates in the past couple of years, would-be buyers have moved back into the rental pool.
Apartment Sales
Apartment sales, like most commercial real estate products, have seen an increase in velocity the past couple of years. There are several key contributors to this phenomenon: marginal stock performance, increased influx of capital, easy credit, and real estate becoming more of an accepted asset class for institutional and private equity investors as they seek to diversify their portfolios.
As depicted in the graph on the right, apartment sales volume has continually increased each of the past four years, and it appears that 2006 will continue the trend. Even if it does not exceed the record for sales volume set in 2005, it has already reached twice the volume of 2003, and has exceeded 2004.
Capitalization Rates
As the capitalization rates have decreased the past few years, investment prices have been driven up. Compare this rate with the 10 year treasury, which is considered to be a no-risk investment. Subtract the value of the 10 year treasury from the cap rate to calculate the additional rate of return for the risk of investment. Notice that the increase of cap rate over treasury was over 4% in 2002 and is now just above 1%. This indicates that investors see multi family assets as solid investments.
Featured Team
The Investment Services team of Mark Kolsrud, CPM, Matthew Klein and Shawn Moore has been involved in a significant number of large industrial and office investment transactions over the past 24 months. They have sold 6,387,000 square feet totaling over $253,000,000 in sales volume. Currently, the team has another 1,431,000 square feet under contract, including one portfolio of 25 properties. To date, some of their most significant clients include: First Industrial, Duke Realty, Citigroup, AMB Realty, Commercial Development Corp., Evergreen Realty, L&B Realty Advisors, Talcott Realty, Aegon USA Realty Advisors.
Mark Kolsrud, CPM
Mark W. Kolsrud is Senior Vice President of the Investment Services division of Colliers Turley Martin Tucker. He is responsible for the direction of private and institutional investment sales in the Minneapolis area. Mark has been involved with the commercial brokerage business in the Twin Cities for twenty-five years.
Prior to joining Colliers, in 1991 Mark spent time in Europe serving as a real estate consultant in Holland, Germany, France and the United Kingdom. He began his career with the Robert Bobblett Association in 1984 and was responsible for managing, leasing and renewing almost 5,000,000 square feet of property. Mark has earned his CPM and Associate Arts Degree. He is an active volunteer is an Elder at Hope Presbyterian Church, is very active with his family and lives in Lakeville.
Matthew Klein
Matthew Klein joined Colliers in 2003, and specializes in the sale of investment properties throughout the Twin Cities Metro Area. He represents both property owners and investors throughout the acquisition and disposition process, as well as, consultation, project leasing, site selection and final sale/lease negotiations. Since 2005, Matthew’s team has sold in excess of $250,000,000 worth of investment property and leased more than 850,000 square feet within the Twin Cities Metro Area, winning the award for Industrial and Investment Transaction of the Year in 2005.
He is currently a member of MNCAR – Minnesota Commercial Association of REALTORS, Inc., NAR – National Association of Realtors, and NAIOP – National Association of Industrial and Office Properties.
Shawn Moore
Shawn Moore joined Colliers in 2005, teaming with Mark Kolsrud and Matt Klein. He assists in the financial analysis, marketing, and disposition of investment grade properties. Prior to joining Colliers, Shawn worked as an intern with NAIOP’s City and Developer Surveys, where he surveyed and compiled the various costs and timing issues relating to real estate development in many of the cities in the Twin Cities Metro Area.
Shawn is a member of NAIOP – National Association of Industrial & Office Properties and MNCAR – Minnesota Commercial Association of Realtors.
Updates
Brokerage – Recent Transactions
One Southwest Crossing
(Eden Prairie, MN) – Martin Wolfe, Gary Glockner and Anna Engstrom of Colliers Turley Martin Tucker-Minneapolis/St. Paul’s Office Sales and Leasing division represented Talcott Realty Investors, LLC in the renewal and expansion of their largest tenant, CIGNA Corporation, located at One Southwest Crossing. CIGNA now occupies 111,060 square feet of space in the building.
Courtly Park Townhomes
(Woodbury, MN) – James McCaffrey, SIOR, CCIM, Gina Dingman, CCIM and Julie Lux, CCIM of Colliers Turley Martin Tucker – Minneapolis/St. Paul Multi-family Housing Investment Services Group represented Morgan Stanley with US Bank National Association in the sale of Courtly Park Townhomes, a 76-unit project located in Woodbury to the buyer, Madison Equities.
Appraisal – Case Studies
Suburban Office Building
Loan Work-out/Asset Management
This particular lender needed assistance in making decisions related to potential disposition, since the owner was in default on the loan. Complicating the appraisal process was the fact that the building had significant “water problems” that needed to be addressed. Scott Neu, MAI, assisted the out-of-state lender by assembling the appropriate team of experts to diagnose the extent of the water damage and the associated remediation costs. Colliers was also retained to handle the property management services during the transition period.
Suburban Retail Portfolio
Estate Planning/Partial Interest Valuation
The Colliers team of Rodger Skare, MAI, and Scott Neu, MAI, assisted a real estate attorney in the partial interest valuation of a suburban retail portfolio. Market participants (real estate investors) and the Tax Court recognize that an owner of a partial interest, especially a minority interest, can not sell their ownership interest at full market value; thus support for the partial interest discount must be fully researched and documented. In this particular assignment, the appraisers estimated the value of a 20% interest in a limited partnership; and specifically that of a limited partner.
New Faces
Jeff Pearson
We are pleased to announce that Jeffrey Pearson has joined the company as a junior industrial broker. He joins the industrial team of Josh Huempfner and Duane Poppe.
Pearson holds a B.B.A. from the University of Wisconsin – Madison in Real Estate & Urban Land Economics and Marketing. He has more than five years of experience in organizational support and project planning. Most recently, Pearson worked with NAI Welsh in the research department, assisting industrial and mortgage brokers. Prior to that position, he spent two years with the Peace Corps in the Kyrgyz Republic, where he worked with a national snow leopard reserve, local schools and community organizations for more than two years.