Deep pockets: Investors looking to multi-family apartment developments

Dave Goins//October 24, 2011

Deep pockets: Investors looking to multi-family apartment developments

Dave Goins//October 24, 2011

Matthew Le Baron of Trust Realty offered one perspective on the commercial real estate market in the valley. (Photo by Laurie Pearman)

Commercial property investors with deep pockets are increasingly moving toward large-scale investments in multi-family apartment developments in the Treasure Valley, according to one local real estate broker.

Basically, more homeowners who are fleeing the financial fallout from the recent years’ Great Recession are moving into apartments in the Treasure Valley, and undisclosed wealthy investors have noticed, said Trust Realty principal Matthew Le Baron.

“It’s your bigger investors that are making moves right now,” Le Baron said, then provided some extra investor profile information: “People that feel a little less risk when they shell out millions of dollars.”

Le Baron philosophized: “Any true investor will make moves in a down market.”

Shrinking apartment vacancy rates recently in the Treasure Valley have created the need for more multi-family apartment developments in the commercial real estate sector, Le Baron explained.

Le Baron said he expects a near-term price spike for multi-family commercial developments – commonly apartment complexes that range anywhere from a minimum of five units to Le Baron’s example of 60 units, or an even greater number of living spaces.

“The demand is increasing and will continue to increase for multi-family,” he said.

The commercial investment movement in recent months toward backing new-build apartments has emerged against the backdrop of relatively sluggish retail and industrial development, Le Baron stated. Also, one may add to the picture the continuing surfeit of distressed properties – including the many foreclosed-upon single-family homes that have bloated the Treasure Valley’s overall available housing inventory and exerted downward pressure on pricing, he said.

Investments now in multi-family developments in the Treasure Valley will bear much quicker returns than dollars devoted to potential future profits in retail developments, Le Baron said.

Which areas of the Treasure Valley are currently experiencing the greatest demand for multi-family apartment buildings?

“I think everything starts at the epicenter of Boise and spreads out from there,” said Le Baron, whose firm has offices in Nampa and Meridian. “Most investors that I speak with, they do like to stay in the epicenters near the Boise area. But, of course the farther west you go, or the farther east you go, the more bang for the buck you’re going to get. However, your rental rates and the future appreciation won’t be as high in the outskirts of Boise.”

Although too early to announce, Le Baron said his firm is working on two pending multi-family property deals in Ada County – at Meridian.

Le Baron said the property market environment is now right for investment in multi-family apartment development, where Le Baron noted that he has observed a marked increase in demand for multi-family apartment complexes during the last four months.

Business associates of Le Baron’s in commercial property development have corroborated his views on the current investment environment for multi-family developments, he said.

“It’s a good time to buy ground,” Le Baron said. “Ground is cheap. Interest rates are low. People (investors) that have been holding their money, it’s a great time to (buy). … Rental rates have increased by 10 percent in the last three months. People keep losing their homes, of course, due to short sales. They have to find a place to live.”

Enter apartment buildings.

“I think that multi-family right now, at this point, is a hot item due to the (low) vacancy rate that we have out there, due to the fact that people are losing homes,” Le Baron explained. “And so, people that have been holding their money are looking for something to put their money into besides the stock market, besides something that fluctuates the way it does, especially now.”