McCloud Properties LLC formed a Private Placement to purchase a 25 unit apartment complex in Greenville, Michigan.  Echelon Property Management has taken over management of the apartment community.

Echelon Property Management is excited to announce that we currently have a contract to purchase 25 units in Greenville, MI!  The complex is stabilized and both the interior and exteriors are in outstanding condition.  Greenville Commercial Bank will be providing financing, and the project is scheduled to close June 2010.

This is really an outstanding project, with very low occupancy and great retention of tenants.  It sits in a quiet, relatively secluded lot, but still very close to the center of town.  The original builder thought of everything, making great use of all available space and putting a great deal of care and detail in their construction.  Also, the current owner has made approximately $750,000 in improvements over the last five years.

Appraisal and Phase 1 are in process, and should be completed soon!  As more information develops we’ll pass it on, in the meantime look for us to pose some photos of the project!

On a different note the CPI hit a low in July 2009 and has been on a steady rise ever since, while rents have been on a slow steady decrease since January 2009.  Higher vacancy has contributed to the drop in rents and owners looking to give concessions have dropped the real effective rent they receive.  Grand Rapids is experiencing heavy concessions with some companies offering 2 bedrooms for 1 bedroom prices and the usual concession of 1 or 2 months free rent.  Its unfortunate that so many owners offer such outrageous concessions because it only seems to add to their problem.  They reduce rents by a hundred dollars and when they raise it back up a year later the person moves and the problem just keeps rotating from year to year.  I say focus on the true rental rate for the unit type and avoid the concession syndrome for more stable occupancy and more satisfied tenants!

On a more local level, Echelon Property Management has seen that in Michigan, utility costs seem to be rising especially with local municipalities water and sewer charges.

The cost of labor and material still seem to be down compared to the past.

The cost of payroll and overhead should stay  pretty even since the cuts to the employee costs will be offset by increases in fuel, insurance and government taxes, as well as costs like requiring property managers to be lead paint certified.  Recent quotes for insurance shows that Insurance companies are once again charging a premium to write apartment buildings.

Our experience has been similar; here are a few things that have stood out to me:

• Its nice to see the private buyers being able to purchase value added properties without having to compete with the institutional investors like years past.
• I have seen the apartments in our area sold to private groups and I don’t know of any that have gone to institutions.
• We are currently looking to purchase a local apartment complex.
• A couple sites that have been for sale that attempted to purchase ended up being sold to private groups either locally or out of state.

Hopefully this trend continues through 2010!

However it appears that the FHA is in the process of tightening the reins on this particular type of lending. Take a look over here for additional information.

Some of the key points in the article:

The 221(d)(4) program has always offered some of the most generous terms in the industry, terms that have never changed throughout the programs history. The loan’s 1.11x DSCR is a key feature of the program.

But under the proposed changes, market-rate deals seeking 221(d)(4) loans would be underwritten to a minimum 1.20x DSCR. Projects with subsidy levels of 95 percent or greater will still enjoy a 1.11x DSCR, but low-income tax credit deals would be bumped up to a minimum 1.15x.

And that’s not all. Another proposed change would increase the minimum required amount of working capital funds. In the past, developers had to put up 2 percent of the total loan amount in a working capital fund, but that figure will be 4 percent under the proposed rules. That’s a big change: On a $10 million dollar loan, a developer will have to come up with another $200,000. Another proposed change involves increasing the program’s required operating deficit reserves, from three months of debt service to four months.

More modest changes were proposed to the FHA’s Sec. 223(f) program for refinancings or acquisitions. That program, which has also been a key source of liquidity for the multifamily industry, will see a tougher DSCR requirement as well. Tax-credit deals and HAP-contract deals will stay at the program’s current level of 1.1765x DSCR, but market-rate deals will be bumped up to 1.20x.

Make sure you check out the original article on HousingFinancing.com. We’d love to hear your comments about this, or anything else related to multifamily property management!

]]> http://blog.echelonpm.com/?feed=rss2&p=15 3 http://blog.echelonpm.com/?p=13 http://blog.echelonpm.com/?p=13#comments Tue, 02 Feb 2010 19:08:22 +0000 Chip LaFleur http://echelonpm.wordpress.com/?p=13 Until the financial markets stabilize, financing any commercial or investment property is going to remain a challenge.  On January 27, CoStar posted this article: Banks Report Slowing CRE Loan Charge-Offs, that seems to present some mildly positive news on the banking front.  Of course the article is very cautiously (and you might say mildly) optimistic.  Midway through the article, though, CoStar references the FDIC Chief’s comments in another article here: FDIC Chief: CRE Delinquencies, Bank Failures to Keep Rising.  Of course things need to get worse before they get better.  In the interim, though, financing multifamily and investment acquisitions and dispositions will continue to be challenging.

One resource you might find useful is the FDIC website, located at http://www.fdic.gov.  Every week the FDIC lists the banks that have closed the week before.  Last week the following banks were closed down: American Marine Bank, Bainbridge Island, WA; First Regional Bank, Los Angeles, CA; Community Bank & Trust, Cornelia, GA; Marshall Bank, Hallock, MN; Florida Community Bank, Immokalee, FL; and First National Bank of Georgia, Carrollton, GA.

For a complete list of closed banks, go to the FDIC’s Failed Bank List.

All that being said, there are some opportunities in the marketplace.  A strong buyer with a good track record that has shown their ability to bring under-performing properties up to speed is still able (granted with additional efforts that were not necessary two – three years ago) to find potential lenders.  And some buyers with great relationships with their banks and bankers may be able to leverage that relationship to finance a project that would otherwise be unattainable.

If you have a project that you are working on or interested in pursuing, and would like to chat about the challenges you have faced or the successes you have realized, feel free to drop me an email at jmccloud@echelonpm.com, or catch me on twitter: @echelonpm.

John McCloud, owner of Echelon Property Management, is a Certified Property Manager (CPM), the highest designation you can achieve in real estate management. He has served as the Vice President of Legislative Affairs and the Vice President of Education for the Institute of Real Estate Management’s Chicago Chapter. He is considered an expert in apartment utility sub metering and allocation and has been cited as such in Apartment Finance Today (May/June 2004), Multi-Family Executive (January 2004), and Units (October 2003).

Founded in 1933, the Institute of Real Estate Management educates real estate managers and certifies and enhances the competence and professionalism of individuals and organizations engaged in real estate management.  IREM^® also serves as an advocate on issues affecting the real estate management industry.  IREM^® has over 16,000 individual members, 8,600 who hold the CPM^® designation and 3,600 who hold the ARM^® certification.  In addition, it has 530 firms that hold the AMO^® accreditation.  IREM^® also has 82 U.S. chapters, seven international chapters and several other partnerships around the world.

We felt that having a way to communicate about acquisitions, dispositions, multi-family trends, company news, and other developments and news would fit with Echelon Property Management’s Mission statement, which is as follows:

Our mission is to acquire and manage real estate investments and deliver above average returns to the ownership without compromising the integrity of our company philosophy, building structures or the quality of service to our residents.

Company Philosophy:

• To be successful we cannot compromise our moral integrity and reputation
• As a professional management company we will do a better job than an owner/investor could do themselves
• Profit is a product of striving for excellence
• We will maintain our relationships with residents by offering them a quality product at an excellent value
• We will meet or exceed our customers’ expectations
• Innovation, flexibility and critical thinking are the foundation of our future

We would love to hear from you about anything having to do with property management, multi-family projects, industry news – or anything else you’d like to contribute!  Feel free to comment or shoot us an email at jmccloud@echelonpm.com!