mhg
DETROIT
Magic in Detroit’s Multi-Housing Market By: Rob Stone, First Vice President CBRE Detroit Multi-Housing Group
C A P I TA L M A R K E T S | M U LT I - H O U S I N G G R O U P
First Quarter 2009 Newsletter
INSIDE IMPROVING YOUR BOTTOM LINE LEAN, GREEN MULTI-FAMILY MARKETING APPRAISER’S CORNER CITY OF DETROIT | Multi-Housing Update CAPITAL MARKETS | Today MARKET OVERVIEW CURRENT LISTINGS
CAPITAL MARKETS | DETROIT MULTI-HOUSING GROUP
Page 1 www.cbre.com/mhgdetroit
IMPROVING YOUR BOTTOM LINE
By: Robert M. Stone, First Vice President CB Richard Ellis | Detroit Multi-Housing Team We are accustomed to hearing “Location, Location, Location” in our industry – however, today’s mantra has become “Reduce, Reduce, Reduce”. This is reflected in the many strategies multihousing owners are using, particularly here in Southeast Michigan. We have heard from many of strategies and resources more efficient, allowing into a yoga position
you in the past few months on the you’ve employed to become you to stretch that NOI you never thought possible!
During this quirky time, Keith Johnson and I have embarked on a campaign to share with you all of the ways owners are refocusing their efforts and taking control of how they are managing their properties and improving their bottom line – hence this Detroit MHG Newsletter Edition – Improving Your Bottom Line. In this edition, Tracy Koe Wick, of NeumannSmith Architecture emphasizes the importance of having a comprehensive marketing strategy for recruiting and retaining renters. Using lean and green internet approaches that save money, her efforts have catapulted occupancy numbers for multifamily owners. Her unique perspective because she is LEED Accredited is very timely and she is clearly on the forefront of the Green Revolution occurring in the Real Estate Industry. I am also grateful to Andrea Longhurst, our Marketing Director, for her tenacity in pushing Keith and I to make this an essential part of our Newsletter. As she said it, “while market overview information is important, the power of being in a position to provide information that can impact their bottom line is real and useful right now”. We hope you find that to be the case and we look forward to featuring these strategies in the Detroit MHG Newsletter going forward. Here are other ways returns today that you
owners are improving their may not have heard about:
Lowering Property Taxes Are you paying too much in property taxes? The largest expense incurred in operating many income producing properties is property taxes. Look at the Appraiser’s Corner section of our Newsletter (pg 5) as Jeff Jozwick, the Multi-housing Appraiser for CBRE Detroit reveals a simple technique known as “loading the cap rate” to see if you have a case to lower your taxes. CAPITAL MARKETS | DETROIT MULTI-HOUSING GROUP
When you do conclude that its time to pursue lowering taxes, Michael Shapiro of Honigman, Miller, Schwartz & Cohen maintains one of the best reputations in achieving results. They have saved clients more than $200 million in Michigan property taxes in the last 3 years alone. He says that a property tax expense can often be reduced by effective representation in a property tax Appeal. He further states ”Because assessors are attempting to preserve the tax base, they generally are not reducing assessments to reflect current economic realities.” Now is the time to review your property tax assessments and retain counsel to perfect a timely appeal and increase your NOI. This is particularly important in Michigan, where under Proposal A, future annual increases in the property tax base are generally limited to no more than the increase in inflation. Lowering Utilities Because Michigan has become a deregulated State, local utility providers are getting out of the energy supply business. While these providers will continue to transmit and service your electricity and natural gas, there is a great opportunity to significantly reduce your energy expense by working with a group like Select Energy Partners to access competitive supply. Owners, particularly of larger assets, can see real savings. Arvind Chary, Managing Director of Select Energy Partners says, “They can help your business become proactive rather than reactive and there is no cost to you to begin to save money immediately. We have saved owners in Michigan anywhere from 15% to 30% on an annual basis.” There is no minimum consumption requirement to begin saving on your natural gas bills. For Select Energy Partners to competitively bid out your electricity, retail electric suppliers require a minimum annual usage of 800,000 kWh. Cable, Phone, and Internet/Credit Card Payment Systems More and more apartment owners are finding other ways to add to their revenue streams. Bob Arndt, President of NeX3 Communications says that, “owners can increase their revenue up to $10 per unit per month if tenants sign on with his program”. Similarly, Anna Assenmacher of Lakeshore Payments suggests that owners can add revenue through convenience fees if they participate in credit and debit card systems. While credit and debit card acceptance has generally been discouraged in the past, a new Visa/MasterCard Page 2
IMPROVING YOUR BOTTOM LINE
By: Robert M. Stone, First Vice President CB Richard Ellis | Detroit Multi-Housing Team interchange rate category significantly changes the landscape for property owners, providing new opportunities for acceptance. These systems also have the added benefit of improving collections and tenant retention. Cost Segregation Cost Segregation is a critical strategy recommended to help property owners achieve the maximum return on their investment. It is a federal tax consulting service whereby an engineer evaluates a property and assigns the assets to the optimal tax depreciation lives. “The result, says Eli Varol, Managing Director of CBRE’s Cost Segregation Group, is the acceleration of the depreciation expense and the deferment of tax obligations. Over the life of the property, the same taxes are paid.” Multifamily residential buildings default to a 27.5 year federal tax depreciation life. However, certain components, if properly identified, may qualify for a shorter federal tax life of 5 or 15 years. Examples of the 5-year property include carpeting, laundry power & plumbing, kitchen equipment power & plumbing, built-in cabinetry, and telecommunication systems. A significant present value benefit can be generated by deferring these tax obligations to future years. This benefit can not be achieved without first having a Cost Segregation analysis performed. CBRE now has a team focused on Cost Segregation analysis and is one of the largest providers of Cost Segregation services in the U.S. Combine and Conquer! Finally, combining these resources can have a real impact on your bottom line that will get you to that yoga position you never thought possible! More information on these resources and others can be found on our website at www.cbre.com/mhgdetroit. Additionally, we have provided you with contact information to the right for these and others. Good luck! Robert M. stone First Vice President 248.351.2045
[email protected] www.cbre.com/mhgdetroit Rob Stone is the Director of CBRE’s Detroit Multi-housing Group, which has produced over $1 billion in Multi-family Sales.
Additional Resources for Improving Your Bottom Line: Internet and Green Marketing Programs to Boost Occupancy Tracy Koe Wick (248) 352-8310 x1102
[email protected] www.neumannsmith.com Reduce Property Taxes Michael Shapiro, (313) 465-7622
[email protected] www.honigman.com Multi-housing Appraisal Jeff Jozwick, MAI (248) 351-2090
[email protected] Lowering Utilities Arvind Chary, Managing Director (917) 720-8986
[email protected] www.selectenergypartners.com Cable, Phone, and Internet Revenue Bob Arndt, CEO (734) 789-8900
[email protected] www.nex3comm.com Credit Card Payment Solutions Anna Assenmacher (312) 873-3266
[email protected] www.lakeshorepayments.com Cost Segregation Eli Varol, Managing Director (312) 416-3081
[email protected] Source: CBRE Detroit Multi-Housing Team CAPITAL MARKETS | DETROIT MULTI-HOUSING GROUP
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LEAN, GREEN MULTI-FAMILY MARKETING By: Tracy Koe Wick, LEED, AP, MUP Neumann/Smith Architecture
behind.1 If you would like to better understand the ways in which your building is green or how to incorporate high-performance, sustainable features, request a LEED assessment from an accredited professional. Visit www.usgbc.com to locate a LEED AP in your area.
Source: Neumann/Smith Architecture Although many marketing programs promise a magic solution for increasing occupancy, to successfully compete in this economic climate, multi-family leaders need to: • Be aware of economic policies, financial options, and competitive offerings, • Understand the unique benefits that renters realize from their properties, • Stay in contact with current renters for increased retention, and • Attract new renters to their properties with targeted and compelling messaging. A comprehensive marketing strategy must include efforts in each of the areas above. This article will introduce multi-family investors, developers, and property managers to ‘lean, green’ marketing tools they can use to attract renters in 2009. Go Green Every sustainable marketing program needs to respect budgetary boundaries and record real results. The way to market has dramatically shifted over the past five years away from print and toward more efficient vehicles like internet advertising, public relations, and direct sales. And, with more Gen Y prospects in the marketplace, it is increasingly necessary to demonstrate the green aspects of your property. In a recent study, forty-seven percent said they would be willing to pay more for environmentally friendly services, products or brands. Out of this percentage, the vast majority (77 percent) cited their “care about the environment” as the reason behind their willingness to pay more, with other qualifiers, such as “it’s the right thing to do” (21 percent) or “so that people know I’m environmentally aware” (2 percent) trailing
CAPITAL MARKETS | DETROIT MULTI-HOUSING GROUP
Internet Advertising If you are targeting tech-savvy renters, reach them on the internet. Not only is internet advertising more eco-friendly, it is more cost effective than traditional print techniques. More than 70 percent of renters begin their apartment search online, and many firms now report more than 50 percent of their leasing activity is coming from online sources.2 Investigate banner advertising on metro websites that reach your target renters. Often the most effective websites are city magazines with on-line calendars which attract young, upwardly mobile singles and couples with an appetite for entertainment and disposable income. Other options include online rental websites like rent.com. The effectiveness of online advertising campaigns is easy to measure and the cost usually correlates to click-through web traffic or the number of guaranteed exposures. Internet advertising is a green, earth-friendly way to advertise because it is digital and does not waste natural resources. By using these lean, green marketing tools you can save money and the environment at the same time.
TRACY KOE WICK Neumann/Smith Architecture 248.352.8310 X1102
[email protected] www.neumannsmith.com
Tracy Koe Wick, is the Director of the Real Estate Strategies Group at Neumann/Smith Architecture. Tracy is a real estate consultant, marketing strategist, urban planner, and LEED Accredited Professional with over fifteen years of experience. Tracy’s main focus is to increase the marketability of multi-family and mixed-use developments. She recently returned from Dubai where she conducted a five-day seminar on ‘Real Estate Marketing’.
1 2
www.environmentalleader.com www.nmhs.org Page 4
APPRAISER’S CORNER
By: Jeff Jozwick, First Vice President CB Richard Ellis | Valuation & Advisory Services Reviewing your property tax assessment Are you paying too much in property taxes? In times of changing market dynamics our local taxing authorities cannot always keep up with each individual property. The following discussion will illustrate a quick check to see if your real property assessment is in line with your property’s market value. The technique is called “loading the cap rate”. The technique is accomplished using a modified income capitalization approach, with the local millage rate added to the capitalization rate and property taxes excluded from expenses. The method is discussed below. The first step is to find out the non-homestead millage rate in the city/ township your property is located. Many suburban Detroit communities have a millage rate near 50.0 mills per $1,000 of assessment. The millage rate needs to be converted to a percentage (divide by 1,000) and then reduced 50%, as taxes in MI are based on 50% of value. The result of the 50.0 mills millage rate equals 2.50%. This is added to the market cap rate for your specific property. For this example a market cap rate of 8.50% is used. The tax cap rate is therefore 11.00%. Using your 2008 operating statement subtract out the property tax expense and apply the tax cap rate to your NOI (before amortization and depreciation). See Below:
TAX CAP RATE EXAMPLE Effective Gross Income Expenses (no taxes) Net Operating Income Value (rounded)
$1,000,000 Market Cap Rate
8.50%
($400,000) Tax Rate (at 50%)
2.50%
$600,000 Tax Cap Rate
11.00%
$5,450,000
The analysis will give an indication of market value based on your most recent operating statement. This indication is compared to your current assessment. Again, taxes in MI are based on 50% so reduce the market indication by 50%, which equals $2,725,000. Property taxes are based on your Taxable Value. If your Taxable Value is above this number you are likely paying too much in property taxes and may consider an appeal of the assessment. If your State Equalized Value (SEV) is above this amount you are not being impacted currently, however if you plan to sell in the near future the over-assessment may negatively impact the pricing of the property.
JEFF JOZWICK First Vice President 248.351.2090
[email protected] Jeff Jozwick, MAI is a First Vice President with CB Richard Ellis’ Valuation and Advisory Services Group – Detroit, Michigan. The Valuation and Advisory Services Group provides appraisal valuations and consulting services to a broad based national and local clientele including investors, property owners, commercial and investment banks, insurance companies, pension funds and REITs. His appraisal and consulting experience includes report preparation for financing as well as tax assessment appeal, lease negotiation, acquisition and disposition, and condemnation. His areas of specialty include multi-family, manufactured housing and single-tenant net-leased retail properties.
Source: CBRE Detroit Multi-Housing Team CAPITAL MARKETS | DETROIT MULTI-HOUSING GROUP
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CITY OF DETROIT | Multi-Housing Update By: W. Keith Johnson, Senior Associate CB Richard Ellis | Detroit Multi-Housing :: Private Client Group
Source: Westin Book Cadillac Downtown Detroit’s recent developments in the last 6 months have been dominated by hotels and apartments. In early October of 2008 Cleveland-based Ferchill Group restored the Book Cadillac Hotel, which they renamed the Westin Book Cadillac. The exterior and interior have been completely remodeled and refinished to show all of the buildings style and glory from its original debut in 1924. Taking two years and $190 million to renovate the property, the building has 453 rooms and 64 condos. All of the guest rooms offer sweeping views of the Detroit River and the city skyline. Rooms are very spacious —averaging 475 square feet—and showcase rich fabrics and textures. Standard guest room amenities include a 42-inch LCD flat-screen television, wireless high-speed Internet access, the Heavenly® Bed and Heavenly® Bath, Westin WakeCup®, dualline cordless phones, refreshment center and laptop-size safe. Hotel facilities and services include a full-service business center, a sundries retail shop, a lobby bar, 24-hour in-room dining, an ATM, valet and self-parking, Service Express®, the Westin Kids Club® and concierge services. Now that the Westin Book Cadillac Hotel is included in the National Register of Historic Places, this Italian Renaissance– style hotel and all it’s amenities really give Detroit visitors a new, first class experience in downtown.
CAPITAL MARKETS | DETROIT MULTI-HOUSING GROUP
Speaking of historic places, The Fort Shelby Tower Apartments recently began leasing their 56 apartments after a $90 million renovation. Not only do new tenants get to live in a newly renovated, historic building but they also get to take advantage of all the amenities in the Doubletree Fort Shelby Hotel. That’s because Source: Model D the hotel and the apartments share a lobby. Included in a renters’ monthly payment is access to the hotels’: valet parking, 24 hour dining, uniformed doormen, concierge, housekeeping, and dry cleaning services. Another success story in the Washington Boulevard area is Washington Square Apartments. The Habitat Company manages this complex. They’ve spent $2 Million on renovations over the last year. Habitat’s Regional Vice President, Ted Verner, said “occupancy is close to 90% and tenants really appreciate all the upgrades and renovations” 4th Qtr 2008
Downtown Detroit
Midtown/ West Detroit
Vacancies
7.7%
11.8%
Average Rent
$916
$607
Average Rent/SF
$0.99
$0.81
Cap Rates
8.8%
8.8%
Source: Real Capital Analytics Prime Development is having great success with their new project, Studio One Apartments on Woodward, just south of Wayne State’s campus. The development includes 155 beautiful apartments with 30,000 square feet of retail space. All the retail space is leased and occupancy in the apartments is close to 100%.
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CITY OF DETROIT | Multi-Housing Update By: W. Keith Johnson, Senior Associate CB Richard Ellis | Detroit Multi-Housing :: Private Client Group New Developments The City of Detroit’s Department of Transportation (DDOT) will open the Rosa Park Transit Center this summer as part of a $23 million, multi-phased project funded by the federal government. This will make the corner of Michigan and Cass a landmark for people navigating the streets of downtown Detroit when the Transit Center is completed this year. Whether you are walking, driving or riding a bus or the People Mover train, the contemporary design of the building and multi-story fabric canopy will be hard to miss.
would generate $20 million in taxes and $125 million in income. The Eastern Market District’s goal is to simplify its zoning which in turn, will lead to an increase in the area’s mix of uses as well as improving connectivity to other neighborhoods such as Downtown and Midtown. REO Opportunities It just the beginning of the REO sales cycle. Our group continues to receive Broker Opinion of Value requests from lenders and asset managers for multifamily properties in the City of Detroit. There are currently 57 properties on the market in Detroit totalling over $59 million. Of these, 8 are REO. We anticipate CMBS loans maturing this year that were originated in 2004, 2005, and 2006. We are seeing an increase of activity of deals trading in West Detroit along the Telegraph / I-96 corridor. As an example of this - Rouge Valley, a 44 unit distressed asset, recently sold in Detroit for $5,000 to $6,000 per unit at 60% occupancy. For a list of our exclusive REO deals, visit our website at: www.cbre.com/mhgdetroit
Source: Model D The Detroit film industry continues to grow. Many film and media studios are popping up in Detroit. Wonderstruck Studios and SHM Partners announced plans to invest $85.9 million in a new film, visual effects and animation studio in downtown Detroit. Eastern Market’s continues to thrive. $50 million dollars will be spent over the next 10 years as planning and fundraising for more capital improvements to the rest of the neighborhood continue. Greening of Detroit is expected to break ground this year on a 2.5-acre market garden that will have a greenhouse and hoop sheds to extend the growing season. The garden is about both food production and economic development -the intent is to quantify job production as a function of garden acreage. Current estimates suggest that if just 20 percent of Detroit’s food was produced locally (currently, that number stands at 2-3 percent), 4,700 jobs would be created, which CAPITAL MARKETS | DETROIT MULTI-HOUSING GROUP
Source: CBRE Detroit Multi-Housing Team
W. Keith Johnson Senior Associate 248.351.2076
[email protected] Keith Johnson manages the Private Client Group for the Detroit Multi-housing Group at CBRE.
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CAPITAL MARKETS :: Today
By: Jason Brown, Vice President CBRE Detroit Debt & Equity Finance Group
• During 2008, the Debt & Equity Finance Group of CBRE Capital Markets closed $4 billion in multi-family loans, including $3 billion of agency loans through our Fannie Mae, Freddie Mac, and FHA-HUD platforms. • It is expected that agency programs will continue to dominate the capital markets for multi-family properties, including senior healthcare assets, for the duration of 2009 and into 2010. • Interest rates for agency programs continue to be near all-time lows with Fannie Mae and Freddie Mac offering 10-year fixed rates in the 5.30% to 5.50%, while HUD rates are as low as 5.20% fixed for 35 years. • There is a belief that Fannie Mae and Freddie will continue to be more conservative in their underwriting on deals in the upper Midwest, especially Michigan, Ohio and Indiana. • Both Fannie and Freddie are required to begin reducing their portfolio holdings by 10% per year beginning in 2010 until a portfolio size of $250 billion is reached. • We expect that borrowers are going to be “forced” to turn to HUD for financing their apartment properties, especially in pre-review markets such as Michigan, Ohio and Indiana.
We are all fully aware of the challenging environment we have found ourselves in, however this market is going to create the best investment opportunity since 1992 and the RTC days. Our focus is entirely on “finding the money”. Whether it is agency debt, bridge financing or equity, our focus is finding capital willing to invest in our markets. Here are two HUD programs a few of the loan programs we are actively involved in on “live” deals:
HUD 233(f)
• Market rate multi-family properties • 35-year fully amortizing non-recourse loan, up to 85% LTV for acquisitions and 80% LTV for cash-out refinances • 5.20% note rate • HUD 223(f) deals in the pipeline: • Refinance of a stable portfolio in Macomb County - 85% LTV, no cash-out, 90% occupancy • Refinance of stabilizing asset in Oakland County - 85% LTV, no cash-out, 40% occupancy and beginning to lease up after major re-positioning of the property • Acquisition of a bank-owned asset in Indiana that requires moderate rehab and re-positioning – 85% LTV based on “as stabilized” value, 75% occupancy
HUD 232
• Senior healthcare properties • Acquisition / Refinance – 35-year fully amortizing nonrecourse loan, up to 85% LTV for acquisitions and 80% LTV for cash-out refinances (no cash out in HUD 232) • New Construction / Sub Rehab – 40-year fully amortizing non-recourse loan, up to 90% LTV Source: CBRE Detroit Multi-Housing Team Jason Brown Vice President 248.351.2089
[email protected] Tony Roberts Analyst 248.936.6838
[email protected] 2008 CB Richard Ellis, Inc: We believe the information above to be reliable. However, we make no guarantee, warranty or representation about it. Any opinions or estimates contained in this report represent the judgment of CB Richard Ellis, Inc, at this time, and are subject to change without notice. Rates and analysis are based on certain assumptions with respect to significant factors that may prove not to be as assumed. You should understand the assumptions and evaluate whether they are appropriate for your purposes.
CAPITAL MARKETS | DETROIT MULTI-HOUSING GROUP
• 5.20% note rate on acquisition/refinance, 6.50% on new construction and sub rehab • HUD 232 deals in the pipeline: • Refinance of a stable assisted living facility in Ann Arbor – 85% LTV, no cash-out, 90% occupancy • New construction financing for several CCRC facilities to be built in Michigan – 90% LTV, 85% loan to construction and transaction costs
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MARKET OVERVIEW
By: Robert M. Stone, First Vice President CB Richard Ellis | Detroit Multi-Housing Team Employment and Multi-Housing Outlook Total employment in the Detroit metropolitan area has declined at an average annual rate of 2.2% over the last five years compared to an average annual growth of 0.8% across the U.S. Detroit lost 90 thousand jobs, or about 4.6% of its employment base in 2008 and the metro’s total employment is projected to decline by another 120 thousand jobs (or 6.4%) in 2009, with further tangible job losses expected in 2010. While uncertainty remains with the automotive sector, Detroit’s education and health services should see moderate gains over the next five years. While Detroit’s home prices are still likely to decline by another 1015% in 2009, the metro housing market should begin to stabilize in the second half of this year. The proportion of homes in foreclosure has dropped to 2.6% from 4% in recent months. Permitting is onesixth of the 2004 pace for the past two years, an all time low. As for multi-housing, a total of 456 multi-housing units are due in 2009. They consist of projects in Central Detroit, Oakland County, and South Macomb County.
PERMITS | Detroit 2008
2009
2010
2011
2012
Single Family
503
424
752
1,227
1,878
Multifamily
258
192
358
693
742
Total net absorption of rentable multi-housing with 5 or more units in structure is forecasted to be a negative 2,800 units over 20092010 period, with vacancy rate rising and remaining in 9-10 percent range. Effective rent growth will weaken considerably in the near term but should turn positive over the next five years averaging 2 percent annually as the local economy and housing markets stabilize. Cap Rates Cap Rates for the Detroit MSA have increased 75 basis points from our last Cap Rate Study which was completed by our CBRE Capital Markets Multi-Housing Group.
CAPITAL MARKETS | DETROIT MULTI-HOUSING GROUP
Stabilized and Value Add assets for Class A, B, and C apartment assets are presented in the chart below: March 2009 Multi-Housing Cap Rate Study | Detroit Class A
Class B
Class C
Stabilized
Value-Add
Stabilized
Value-Add
Stabilized
ValueAdd
Cap Rates
7.758.25
8.008.50
8.509.00
8.509.00
9.5010.00
9.7510.25
Basis Point Increase From 5/08
75
0
50
0
48
38
Source: CBRE, Multi-Housing MarketView, April 2009
From May 2008 to March 2009, cap rates have risen 75 basis points for Class A stabilized properties. An example of this can be seen in the Ann Arbor submarket. Ann Arbor considered to be a Class A submarket with strong market fundamentals and lower unemployment, saw Class A assets trading in the 7 to 7.5 cap rate range in mid 2008. Today these same assets would trade in the 7.75 to 8.25 range. Higher cap rate increases were reported for Class A assets in the 33 markets surveyed compared to Class B/C and value added compared to stabilized deals. Previously Class B/C cap rates moved upward further and sooner than Class A cap rates. One of the market dynamics impacting the rise in cap rates for Class A is the addition of more REO assets in the market resulting from Fannie Mae and CMBS loans going into default. With credit markets frozen, capital is searching for these opportunities and consequently there is less demand for Class A stabilized assets Buyer/Seller Composition The exchange of assets in the first quarter of ’09 and the last quarter of 2008 are comprised of institutions and private owners selling assets. On the institutional side, Consolidated Management out of Cleveland sold their remaining 5 assets of their portfolio to Princeton Enterprises of West Bloomfield. AIMCO, having sold 2000 units in Michigan to ELAD (FL) and Timberland (MN) in mid 2008, continues to exit Michigan with their remaining assets on the market in communities such as Farmington, Lansing and East Lansing, and Dearborn communities.
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MARKET OVERVIEW
By: Robert M. Stone, First Vice President CB Richard Ellis | Detroit Multi-Housing Team The larger transactions occurring today, while few, are the resulting combination of institutions leaving Michigan while private buyers seek opportunity at higher cap rates. Smaller transactions ($10,000,000 and under) are occurring, and are often the result of distressed Agency and CMBS loans. The sale of Novi Ridge Apartments to the Jacobson Brothers and the sale of River Oaks in Saline to SMG Capital are two examples in the first quarter of ’09 as both of these communities were distressed asset sales and traded in the $9,000,000 range. Both properties had been on the market for over 1 year and in either case, the sellers expectations adjusted to the market. There are two charts below, one showing volume of sales transactions in Metropolitan Detroit by quarter and the other showing the average price per unit by quarter: total vol
Total Sales Volume
$350,000,000 $300,000,000
CMBS It is becoming more apparent that many of the CMBS loans that are maturing in the next couple of years will also be facing distressed situations. Michigan possesses 5.856% of the total CMBS delinquency balance totaling $701,886,399. Of that, the Detroit MSA is responsible for $522,564,000 and 64 out of 100 of the total loans for MI are in default. While these numbers reflect all product types, it is estimated that multifamily assets make up 20 to 25% of this total. The top three states ranked by delinquency exposure through January 2009 are Texas, Florida and recently California, which surpassed Michigan for the third position. These ranking’s remained the same through February 2009. Together with Texas and Florida, these three states collectively accounted for 30% of CMBS delinquency. In November 2008, New York had passed Michigan and moved into third place in the Realpoint ranking, following the reported delinquency of the Riverton Apartments loan at $225 million. New York is now in the fifth position when ranked by delinquent unpaid balance.
$250,000,000 $200,000,000 $100,000,000
2006
2007
08Q4
08Q3
08Q2
08Q1
07Q4
07Q3
07Q2
07Q1
06Q4
06Q3
06Q1
$0
06Q2
$50,000,000
2008
Source: Real Capital Analytics avg price per unit
2006
2007
08Q4
08Q3
08Q2
08Q1
07Q4
07Q3
07Q2
07Q1
06Q4
06Q3
06Q2
06Q1
Average Price Per unit $90,000 $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0
Financing Options for Multi-housing Agency debt continues to be the preferred option for multifamily transactions in Michigan. CBRE Debt and Equity reports that overall they financed $5,000,000,000 in 2008 of agency loans. With Fannie Mae and Freddie Mac (to a lesser extent) reducing their loan to value ratios from the old days of 80/20, HUD has emerged as a viable third option with the 221 D(4) rehab and new construction program or their 223(f) acquisition or refinance program. With a 223(f), principals willing to wait the 4 to 6 months to complete the HUD process can obtain 85/15 LTV’s, non-recourse loans with no cash out. If there is cash out, then the LTV becomes 80/20.
total vol
$150,000,000
2008
Source: Real Capital Analytics CAPITAL MARKETS | DETROIT MULTI-HOUSING GROUP
Robert M. stone First Vice President avg price per unit 248.351.2045
[email protected] www.cbre.com/mhgdetroit Rob Stone is the Director of CBRE’s Detroit Multi-housing Group, which has produced over $1 billion in Multi-family Sales.
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aVAILABLE OFFERINGS ANN ARBOR LISTINGS
WILLOWTREE TOWERS & APARTMENTS, ANN ARBOR, MI PROPERTY TYPE
STUDENT HOUSING
UNITS/BEDS
473/851
PRICE
UNPRICED
NRA
395,846
YEAR BUILT
1971 - TOWERS 1968/2005 - APARTMENTS 5 - TOWERS 3 - APARTMENTS
LAKE VILLAGE, ANN ARBOR, MI PROPERTY TYPE
MULTI-FAMILY HOUSING
UNITS/BEDS
360
PRICE
$37,900,000
NRA
439,438
YEAR BUILT
1997/2001
STORIES
2
::
Robert M. Stone First Vice President 248.351.2045
[email protected] ::
W. Keith Johnson Senior Associate 248.351.2076
[email protected] ::
Andrea Longhurst Client Services Assistant 248.351.2022
[email protected] www.cbre.com/mhgdetroit
WINDEMERE PARK, ANN ARBOR, MI PROPERTY TYPE
MULTI-FAMILY HOUSING
UNITS/BEDS
480
PRICE
$37,400,000
NRA
468,000
YEAR BUILT
1988
STORIES
2
VISIT OUR WEBSITE FOR ADDITIONAL LISTINGS AUBURN VILLAGE TOWNHOMES, PONTIAC, MI PROPERTY TYPE
MULTI-FAMILY HOUSING
UNITS
240
PRICE
$6,900,000
AVG UNIT SIZE
850 SF
YEAR BUILT
1972
NRA
196,500 SF
VALLEY DRIVE, PONTIAC, MI PROPERTY TYPE
MULTI-FAMILY HOUSING
UNITS
100
PRICE
$3,300,000
AVG UNIT SIZE
833 SF
YEAR BUILT
1975
NRA
77,800 SF
CAPITAL MARKETS | DETROIT MULTI-HOUSING GROUP
J SO US LD T
STORIES
C B R E D etroit multi - housing group
PARKLANE APARTMENTS, BIG RAPIDS, MI © CB Richard Ellis. We obtained the information above from sources we believe to be reliable. However, we have not verified its accuracy and make no guarantee, warranty or representation about it. It is submitted subject to the possibility of errors, omissions, change of price, rental or other conditions, prior sale, lease or financing, or withdrawal without notice. We include projections, opinions, assumptions or estimates for example only, and they may not represent current or future performance of the property. You and your tax and legal advisors should conduct your own investigation of the property and transaction.
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