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Funding available for right multifamily projects

If Jay Wexler, owner of The Discovery Group has a motto, it’s "your lender will be there if you have the right project."

Wexler, a locally based multifamily property consultant who has been contracted on projects across the country, shared some of the secrets to his success during a Building Industry Association-sponsored meeting at the BIA offices Wednesday.

While financing can be elusive, Wexler said that multifamily has the advantage of being a popular asset class.

"Lenders lend on cost and not on value, but if you write yourself a path to liquidity, you have a lender," Wexler said. "You have to put yourself in their shoes. They are scared to death of making a bad loan. Show them your project and make your presentation to their loan committees."

Sometimes Wexler said a solution to a density problem may be as simple as subdividing lots. This not only added density to a project in Seattle, but also resulted in 75 additional units in a multifamily development in Columbus, Ohio.

Wexler said higher densities aren't always a good thing. When he consulted on Zephyr Properties' Paseo La Jolla townhome development, he was able to show why a 24-unit project would have more value than the original 28-unit plan.

The Paseo project, which was on the site of an office building at Herschel Avenue and Pearl Street, was completed last year. Units were priced from the low-$700,000s to slightly more than $1 million.

Wexler, whose clients have generally been apartment developers, said a builder would be a fool not to put a condominium map on their apartment project.

"If people don't put a condo map on their project, they are wasting their money," Wexler said. "This is a great time to buy land for them."

The consultant added that sellers of existing multifamily properties have to ask themselves a basic question.

"Would you buy your property?" Wexler asked, adding that it's amazing to him how many people answer in the negative.

Wexler said having energy-efficient complexes can help make a multifamily property more attractive, "but having solar panels on the roof doesn't make you green."

For an apartment property to be profitable, Wexler says the landlord must raise rents to keep up with inflation.

"Nobody thinks about sustaining rent increases," Wexler said.

Even with apartment vacancies consistently below 5 percent in San Diego County, Wexler said developers often make the mistake of opening a whole project or a huge portion of a project at once, rather than phasing it in.

"The multifamily market is phenomenal in San Diego," Wexler said, particularly in terms of infill projects of 30 to 50 units.

As for existing properties, a lower community vacancy doesn't necessarily help fill the apartments.

"There is plenty of vacancy despite what you may have heard because of bad management," Wexler added.

The apartment property also has to be in good enough shape to warrant its purchase.

"There are thousands of apartment units in the county that are just being held together by paint," he said.

For the buyers of apartment properties, Wexler said another frequent mistake is made when the parties agree to close an escrow early.

"You may need bridge lenders to carry you through, but what's wrong with that?" Wexler said.

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