When I was working in the development industry, we typically had to find sites that supported a minimum of $1.40/sf in rents. Product type typically went with rent levels: garden style was about $1.40/sf, wrap deals were at least $1.80/sf, podium had to be at least $2.00/sf, and high-rise were typically above $2.30/sf, but more likely around $2.50/sf. Acreage requirements went with the rent levels and product type. If you were looking for a high-rise, you usually needed 1/2 an acre, podium deals were anywhere between 1.5 to 3 acres, wrap projects were usually 3 acres, and garden-style projects were typically 8 or more acres. Our company, along with other large development shops, was constrained to working within these parameters. Although we were satisfying a large pent-up demand for Class A apartments, it was nearly impossible for us to meet demand for lower rent apartments. We couldn't make the numbers work for any product at $1.00/sf or below.
In today's environment, there are really only three ways a property can be at a rent level of $1.00/sf or below while also be performing economically. First, new developments can get affordable housing tax credits that offset the cost and allow the product to be built at a lower rent level. Second, properties that were not positioned properly can be purchased for a low price, and can then perform economically at lower rent levels (that 70% occupied property with the low DSCR). Third, older properties that were constructed when costs were lower and have switched hands over the years can achieve returns at a lower rent level.
The constraints of high building costs make older multifamily properties very attractive investment opportunities. If they can be purchased at a good price, older multifamily properties can allow investors to operate in a market that has shrinking supply. They can also be a great way to help diversify your pipeline in the development cycle. If you are capitalized, you can buy a large, older, multifamily property and operate it for a few years while you redevelop it in phases. Overall, these are properties that you can get pretty creative with.
That being said, how do you find them? You used to be limited to the following options: you could find properties on the open market, which have a tendency to be overpriced; you could try to spot them with your market research tools, where older properties tend to be neglected; or you could request your county's appraisal roll and risk crashing your computer for hours. Each option was either painful or lacking.
With Site Identify, we have made it easy to spot multifamily acquisition or redevelopment opportunities. We allow users to search for properties based on size, year built, value of improvements, zoning, and land use types. If you want to easily find multifamily acquisition of redevelopment opportunities, Site Identify might be the tool for you. If interested in being empowered by Site Identify to control your development pipeline, feel free to schedule a live product demonstration.
We hope this helps!
The official Site Identify blog
David Morin (co-founder)