Compressed Cap Rates and Higher Risk Pushes Multifamily Investors to Forgo Older Assets
July 13, 2022
(Wealth Management)—Over the past few years, the delta between cap rates and valuations for older multifamily properties—those completed before 1996—and newer properties has narrowed. In fact, it’s narrowed so much so that investors who’ve traditionally preferred to buy older apartment assets are now “trading up” to much newer properties.
wealthmanagement.comOrion Real Estate Partners is one such investor. The Los Angeles-based firm recently acquired Remington Ranch, a 180-unit apartment community in San Antonio that was built in 2008. With 80 percent of the property’s units in original condition beyond cosmetic repairs, Remington Ranch is “an ideal candidate for a value-add unit renovation,” according to Marc Venegas, principal with Orion Real Estate Partners.
While Remington Ranch features all the physical amenities that residents expect in a newer property, it lacks the quality of finishes of a recently completed building. This “makes it easier” for Orion to execute its business plan, Venegas notes, adding that the firm plans to invest approximately $2.6 million in interior and exterior improvements.
“Historically, when you bought an older property, you got a better price per unit and a better cap rate than you would on a newer property, which gave you more ability to push rents and make a return,” Venegas says. “But over the last few years, those spreads went away, and investors weren’t getting the same benefit for buying older properties that they used to. Old or new, you were almost paying the same cap rate.”