Usually when investors buy a MultiFamily Property they buy based on the capitalization (cap) rate, internal rate of return, or cash on cash. Perhaps a more esoteric buyer will buy it based on a combination of internal rate of return, net present value calculation, and more rarely also the capital accumulation process. But now we have the “by the pound buyer.” He says, cap? Who cares about cap when the market is like crap!
Lately, we have had some large A class multi-family properties go for surprisingly low cap rates in the Phoenix Commercial market. I won’t mention the name of the REIT, but we have a 435 door property in Mesa which was purchased for a 6.35 cap. Yes, Unbelievable right? Maybe, maybe not. We have had a serious decay in the rental market in some areas. 10%+ drops in rents. That does not include the economic vacancies. $99 move in, don’t pay until May 2010, is one I just saw. Nothing about giving away the mother in law with the unit… yet. It’s coming, I can feel it! These adjustments can really hit your bottom line hard. In addition to this, we have had a 50 percent drop in property values. Ouch!
These downward pressures have left us with very inexpensive Commercial Properties, but not necessarily the cap rates we would have expected. Which has resulted in the new buyers. The “by the pound” buyer. If I can buy it significantly less than what it costs to build, I can still do very well in a few years when the rents come back. 99 cents a pound I believe is the going rate….
You may have to buy on proforma right now more than at any other point in the past.
Marc Brodeur BS, DC
Commercial Realtor
Marc@PhoenixCommercialRealEstate.com
Direct (602) 692-4288
www.PhoenixCommercialRealEstate.com
Commercial Realtor
Marc@PhoenixCommercialRealEstate.com
Direct (602) 692-4288
www.PhoenixCommercialRealEstate.com
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