more negative headlines and these are starting to come down again, may get another bite at the apple/average down opportunity.
there's a Bloomberg intelligence article out today pointing out the following:
Property level expenses are about 30% of rents (70% NOI margin) in coastal markets, giving a big cushion and insulating from some rent/occupancy declines and or cost increase (property tax hikes). Costs are mostly fixed (property taxes and insurance are 40% of property level costs). Even the lower rent / non coastal ones like Camden are at 35% (65% NOI margin).
The apartment REITs on average have 5x EBITDA / Interest. They have low leverage that has low cost giving them an ample runway. In 2008 (before the crash), this number was 2.5x for perspective. Apartment REITs have locked in long and low leverage and (if spreads normalize) that costs is going lower, they've spent the past few years selling non-core assets to opportunity funds/locals and upgraded their portfolio quality / age through development and acquisition.
that a storm is coming is certain, that they are more than ready is my opinion.
that they are cheap..well I don't think they are SUPER cheap. EQR is at about a 5.7% cap right now. ($1.7 billion / $9B Debt + $21 Billion market cap); i like them more as that gets to a 6 or even (gasp) a 7 handle. think about what huge institutional pools of capital are going to be faced with rates at 0%-1%. What is TIAA traditional and TIAA real estate account going to buy? What about Metlife?
I'd say high quality multi-family in gateway cities at unlevered 5,6% yields fits that bill just fine (for a portion of the balance sheet). I don't think we're going to see multi-fam cap rates blow out to 8% or something, and if they do, then EQR and its friends are probably still going to have capital markets access and will be buying buildings.
EQR owns about 70,000 apartment units and trades for $30 billion. That's about $422K / unit.
Can someone please direct me to condo listings in NYC/DC/LA/Boston, where I can buy a new-ish condo next to the metro/soulcycle/sweetgreen for $422K? After you do that, can you provide me with 4% interest only financing at say 27 years (EQR's 2047's have a 4% coupon). Okay great, now can you buy 70,000 of those and manage it all professionally for me? K thanks. Oh wait, that doesn't exist in real life.
anecdotal survey for the crowd, has anyone heard of people with "good" jobs getting fired/laid off. Here is my anecdote: Marriott corporate HQ in Bethesda furloughed a large percentage of their corporate folks; that likley includes some very good jobs. I don't think people who rent yuppie apartments are completely immune, but I'd be surprised if a very large percent aren't able to make rent/lose their jobs; Ive been wrong before so we'll have to see.