Hello!
September has been all about moving deals forward, with a substantial increase in market activity. It felt like every other headline was about record deal closing across markets. This is partially driven by a typical fourth quarter push but is also driven by the conversation we’ve been having all year: management complexity, legislation, tax implications, and investor appetite for multifamily.
For more detail on the Inland Northwest market over the last month, keep reading.
While you’re at it, shoot me a reply here and let me know what you’d like to hear about next month. I want to make sure this monthly series keeps you informed and provides valuable content each month!
Overall Market
- Almost every deal in the Inland Northwest is being positioned as a value-add opportunity. Even 2013-construction has a value-add component. Why? The market has seen so much rent growth, that even leases that were signed 3 months ago have substantial loss-to-lease. This means the buyer can acquire the asset, bring rents up to market, and realize a significant increase in NOI and value.
- A practical example: One owner I worked with was leasing his 2-bed/1-bath unit for $1,030 in July. He is now leasing the same floorplan for $1,245 in late September. That’s a +20% increase in 3 months’ time!
- The biggest question on investors’ minds? Will wage growth keep up with rent growth over the next 6-12 months? For rent growth to continue, tenant’s income needs to grow, since most landlords require rent be no more than ⅓ of a tenant’s total income. If value-add investors push the average market rent beyond ⅓ of a tenant’s income, then vacancy will increase, and market rents will taper off. For now, it appears that wage growth is keeping up with rent growth at a national and state level – a good sign for investors across the board.
- Investors continue to pour capital into multifamily assets, with a particular increase in activity this month that I anticipate will continue through Q4 2021. The increase is driven by both Buyers and Sellers looking to close by the end of 2021, primarily for tax planning purposes.
- If that sounds like you – a desire to close before end of year – it’s not too late if you are prepared to move quickly. Give me a call today to make sure we can meet your goals and close by year end – (509) 221-9354
Multifamily
- Multifamily continues to be the most favored asset class. With sustained rent growth, tangible returns, and sustained growth through COVID, the investment feels like a win all around.
- This favorability continues to push asset values to record levels, with an increase in transaction volume in 2021. I’ve noticed a significant increase in deals on-market (32), under contract (25), and closing in September (11), including notable $20M+ assets.
- As I mentioned last month, if you own multifamily property, it’s critical that you understand your property value in today’s market.
Did you acquire the property in the last 2 years? It’s still worth knowing the value today. You’ll be shocked by how much the value has appreciated.
Have you owned the property for 10+ years? Now is a great time to consider your options for value-add implementation, market rent resets, refinancing, or transitioning into lower-maintenance properties. - Note: Running the valuation on your property does not mean I’ll recommend you sell your property. That might be the last thing you should do! But to make an informed decision regarding your property holdings, you need to know the value in today’s market.
- I recently analyzed an owner’s 250-unit portfolio in Eastern Washington, even though they have plans to hold for another 10 years. Understanding the property value in today’s market helped them understand the value in executing premium unit renovations compared to a typical unit turn. Without the valuation, they may have continued at their current renovation scope, leaving cashflow and future value on the table each month.
- In each valuation I perform for owners, I provide a property Strengths/Weaknesses analysis, giving you an unbiased look at your property, as well as three ideas for increasing your cashflow. Ready to make sure you know where your property holdings stand? Reply to this email that you’re interested in a valuation, and we will get started right away.
Local News
- A major driver of local economy in the Inland Northwest? Higher education. Whitworth recently ranked 4th among its peers and Gonzaga ranked 79 out of 392 national universities in US News 2022 Best Colleges Report. This is a great sign for Spokane in particular, coming out of two pandemic-impacted school years.
- Amazon is making waves across the Inland Northwest, with a 1 million SF facility announced in Pasco, and a 1.6 million second facility in Spokane. Combined, these will bring 6,500 jobs to the region, helping continue the trend of wage growth.
Development
- There isn’t much new to share on the development front, developers are getting tired of the same old story: labor shortages and material delays.
- Project timelines are being stretched and scheduled completions are being pushed into 2022, but developers are forging forward. The opportunity to create value in the Inland Northwest outshines the difficulties of bringing the asset to the market.
- One project to keep an eye on: An investment firm based in Portland OR is converting 8 hotels/motels into studio units across Eastern Washington. For example, they plan to bring 800+ units to the Tri-Cities market in the coming 9 months. The average unit footprint is 300 square feet and rent will be upwards of $1,200 per month.
- If you own studio or 1-bed units in that price range, make sure you’re prepared to compete with these new, high-end finish, studio units across markets!
Ready to be fully informed on the local market dynamics, asset values, and your position in the market? Give me a call or reply here to start the conversation about your portfolio and goals over the next 5 years.
Best,
Mason Fiascone
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