Miami Multifamily Memo

the generational buying opportunities to come

Before We Dive In...

Job Opportunity:

[reach out to add your job posting here - the last job posting here brought the Miami Real Estate Private Equity employer 12 job applicants]

Alright, let's dive in:

Generational Buying Opportunities Ahead

Why? because:

Rents are softening
Expenses are increasing (insurance, payroll, etc.)
Incoming Rental Supply is at all time highs
Valuations went especially high during 2021-2022
1. Several of these 2021 acquisitions were purchased at or below 4% cap rates
2. Several of these 2021 acquisitions were purchased with 3-year bridge loans (i.e. 2024 loan maturities)
Loans today are +5.75%

So what happens next?

My take is that there is going to be *sponsor-specific trouble* ahead that will lead to some generational buying opportunities.

I want to emphasize the word sponsor-specific trouble because I do not see a systemic issue in the multifamily market, especially in Miami.

Plenty of investors who bought assets at the highs of late 2021 with 7- or 10-year fixed rate debt are going to be just fine. They'll continue collecting rents, paying off their low fixed rate debt service payments, and be happily waiting for the year ~2030 as Miami's tailwinds continue to attract ambitious young professionals, downsizing baby boomers, large employers, entrepreneurs, and billionaires.

Who would've thought we'd see Amazon looking for office space in Miami while Jeff Bezos paddle boards around his new home Indian Creek?

However, in the rush of the 2021 buying craze, several investors bought multifamily properties at high valuations with highly levered bridge debt (typically 3-year, floating rate loans).

These loans are going to start maturing in the second half of 2024. This "wave of maturities" will bring more inventory to the market at attractive valuations.

Discretionary funds and other groups sitting on plenty of cash are going to have some generational buying opportunities ahead.

I'd encourage groups looking to play offense in 2024, however, to de-prioritize cash-on-cash returns and other shorter-term yield metrics, in favor of great real estate at attractive valuations.

As Howard Marks often writes in his memos, "protect your downside and the upside will take care of itself."

I'll leave you with a final piece of information:

Looking to play the offensive, you may be asking yourself, just how many properties will have loans maturing in 2024? Well, let me show you how many properties were purchased in 2021, many of which were acquired with 3-year debt:

My team is tracking the owners and specific properties that have loans coming due.

Feel free to reach out if you are looking to play offense in 2024.

Happy holidays,

Omar

Podcast:

I've started recording my real estate conversations with clients and investors to continue sharing as many *timely* data points and market commentary as possible.

Here is my conversation with the famous anonymous twitter account "The Real Estate God," who has basically created a one man real estate private equity shop that is asset class agnostic and focuses in tertiary markets.

Why? Because smaller deals in tertiary markets is where you can find home runs, according to him. Instead of raising a lot of money to do bigger deals in more competitive markets, he is largely funding his own deals to compound his own capital in the best risk adjusted way possible.

It's a unique and interesting approach to the real estate game that I bet will peak your interest.