He who hesitates is lost…
In my last post, I mentioned the old John Wooden philosophy about being quick, but not hurrying. It was essentially a way of acknowledging that it’s better to move with intensity but not out of control. That belief as it relates to commercial real estate and multifamily in particular is seemingly becoming clearer by the week!
Over the past 2-3 weeks, we have seen a noticeable uptick in activity on both the buying and selling side with multiple brokers and buyers reaching out looking for data on rates and terms. In addition, based on the terms we are seeing, sellers and buyers have adjusted to the new rate environment both in terms of leverage and price. The simple fact of increased communication when two months ago there was little to none points to a thawing in the landscape.
The question for buyers and sellers to ask is when to move. For buyers, interest rates will subside over time while the NOI on a purchase will likely increase over time. Therefore, provided you can secure sufficient leverage right now, your overall longer term cash on cash return will continue increasing. For sellers on the other hand – particularly those who have held property for more than 5-10+ years – while perhaps not selling at the top of the market relative to 2021, you are still trading in a constant market for cap rates. In other words, it’s a lateral move – cap rate for cap rate.
However, by selling now you leverage the overall gains in value over time now and take advantage of those gains by selling and dividing into two or more new properties adding to your total number of units.
It sounds like we can hear the key in the ignition trying to turnover the engine of the car. Before it does turnover may be the last opportunity for some time to take advantage of now knowing if the engine will ever turnover. Once it does, everyone will want to buy and sell. In the CRE market, that simply means buyers and sellers come out of the woodwork all working at cross purposes. Currently as a buyer or seller, the market is a lot less crowded making for more opportunity.
So if you’re considering trying to time the rise, my suggestion is to not hesitate and be lost. Or to paraphrase what coach said, be quick now so you don’t hurry and make a mistake down the road.
