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Postmortem; The Apartment Developers' Dilemma

Regardless of our role within an organization, we will be asked throughout our careers to participate in, lead or evaluate various corporate initiatives. After all, most of what a company really ‘is’ is a series of interrelated initiatives.  These could range from the acts of sales, operations, marketing, and acquisitions to finding efficiencies, fixing problems launching new products, etc. Generally we would like to succeed in whatever initiatives we are involved. And hopefully we have positioned ourselves for success through our understanding and expertise, our dedication and will to succeed, and our preparation and focus. Additionally we may have benefited from multiple books, papers and degrees which exist to provide us tools or help train us to succeed at whatever task we undertake. But invariably, there will be times when success is not an option or when we fail after seemingly doing all of the ‘right’ things. In those cases what do we do?   Our next step should be to perform a postmortem. Think of the postmortem as a forensic analysis of the results of the initiative. Admittedly, the specifics of every project are going to be different. But if we were to approach each postmortem as its own totally unique situation, then it would virtually be impossible to be efficient in our analysis. Over time, we also need the ability to connect the information that we gain to make better future decisions. This is the exact same process that our minds go through as the act of learning. The probl......
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Who Stole My "Community?"; The Apartment Developer's Dilemma

No matter what our role is within the multi-family industry, there is always one word which is used more than any other; “community.” Some of us own communities, some of us develop communities, some of us design communities and others of us lease or operate them. And chances are that many of us live in an apartment, condominium or townhome community as well. So then why is it that there is so little ‘community’ in our communities? When it comes down to this failure’s root cause, it can really only be one of two choices; a.       Either the management team does not expend their energies in a manner that creates a welcoming and vibrant atmosphere that encourages interaction, or b.      The developer did not guide the design in a manner that supports congregation. Now because I am an owner and developer by trade and not a manager, my expertise is limited when it comes to the nuance of property management. I am positive that I undervalue the challenges of those on the front lines. But where I do have some insights is on the development side of the industry. I have mentioned in multiple other essays that the developer has become effectively a highly functioning project manager. We have lost our intellectual curiosity about how folks ‘actually’ live. We have lessened our study of the ways that neighborhoods, communities and cities are formed, only to concentrate on sharpening our excel acumen and expand our address book of consultants. Instead, we generally......
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Single Family to Multifamily (Apartment) Investing, Making a Successful Transition

fishmakingtransition  “If you are not getting bigger, you are getting smaller.” We’ve all heard the quote in business, but have you applied it to your real estate investing career? If you’ve been investing in real estate for awhile, this article is for you. It’s time you take the next step in your investing career. It’s time to use all the knowledge you’ve learned over the years in single family investing and apply it at the next level. It’s time to go from single family to multifamily real estate investments. It’s the logical next step. It will accelerate your wealth and grow your cash flow. There has never been a better time. Are you ready to take the next step in your real estate investing career? Are you ready to go from single family to multifamily investing? If so, there are a few things you need to know so that your jump has a smooth landing. Here are 5 key differences you must know to make a successful transition from single family to multifamily investing: How to determine value. One big difference between single family and multifamily investing is how value is determined. Single family home value is determined by looking at sales of comparable homes. Homes can also be priced per square foot. Apartments are not priced by looking at similar property sales. Multifamily property value is determined by the income it produces. How to read a financial statement. To be successful in multifamily investing you must know how to read and evaluate an investment property’s financial statements and understand the metrics ......
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Do Short-Term Rentals Make Sense for Property Managers?

Short-term rentalsA guest post by Ashley Halligan, Analyst, Property Management Software Guide Short-term rentals, of all natures, have become a hot commodity – and a controversial one at that. Short-term rentals can include vacation rentals and temporary housing, often sought by vacationers, business travelers, or people who have recently relocated while seeking long-term living arrangements. Either way, it’s become an ongoing topic of debate and an attractive investment opportunity for property owners and managers. In comparison to traditional rentals, short-term rentals can charge significantly higher rates given their nightly and weekly availabilities. Some property owners have earned as much as 25% of their mortgage in a single night. And during special events or peak rental periods in a given area, potential rental rates can be very attractive to property owners. Because of the income short-term rentals can procure, the opportunity for profit potential may be exponential – but there are several considerations that should be kept in mind. First and foremost, it’s essential to keep the added costs of maintaining a short-term rental in mind. These rentals can be subject to Hotel Occupancy Taxes in certain cities, while other cities require specific licensures and inspections not required of traditional, long-term rentals. Penalties for not abiding by short-term rental laws in your city may result in hefty fines. There can also be increased insurance costs. Additionally, the cost of regular upkeep and maintenance, including utilities, should be calculated. In order to continually attract tenants, your property must be kept in prime condition, both functionally and cosmetically. F......
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The Most Wonderful Time of the Year; The Apartment Developer's Dilemma

Let me begin by wishing you all a very Merry Christmas and Happy Hanukkah. For those of you who regularly read my scribbles, you are used to some pretty meaty topics. In light of the Holidays, this one will be a bit frothier. In each blog that I write there are certain themes which remain pretty consistent. One of my favorites is that real estate development is about the coolest industry on the planet. After all, our job is to make the world a better, more usable, more beautiful place.   Often my intended audience is the real estate developer (my hope is of course that there is some part of my subject matter which translates to my non-developer audience- or at least helps you better understand those temperamental developers who constantly tell you ‘We can’t afford that.’). Today, I would like to remind us all of something that is very easily glossed over as we perform our day-to-day tasks.   No matter what our role in the industry, we have a hand in something very precious. Through our daily work (whether it is building, developing, leasing, managing or maintaining) we have a definite and real effect on people’s lives. We provide the backdrop in which our residents and neighbors work, play, rest, are made safe, fall in and out of love, have babies, spend their final years, argue and make-up, worship and congregate and pursue their individual goals. And while we don’t necessarily know which combination of these that they are ex......
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Focus on Profitability over Volume Lends to Successful Property Management

CalculatorBy Ben Holubecki, STML Realty Group, Glen Ellyn, IL One of the most important and difficult things to do as a professional property manager is to honestly assess your strengths and weaknesses and build your business around the part of the business that you do best. For those outside of the industry, a property manager is a property manager, and few people can or care to make any distinction between an HOA, multi-family, or single family manager. There are also few who make any distinction between competent professionals and slum lords. It is not surprising that the general public can’t grasp these differences. What is surprising is that many of us as property managers and landlords can’t even make this distinction within our own companies and portfolios. I’m not pointing fingers here, as my company was as guilty as any other only a couple of years ago. Our management portfolio consisted of hundreds of single family units, multi-family buildings ranging from the worst of areas to the best, multiple commercial properties, as well as some associations. We had spent years building up our volume of managed properties without any regard for the type, quality, or location of the properties that we were taking on. We were happy that our unit count was growing steadily, but no matter how many units we added, it seemed that we were not making any additional profits month over month. It was frustrating, to say the least, so we made an effort to find out what the is......
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Always Good Decisions To Be Made; The Apartment Developer's Dilemma

Not long ago, I toured an apartment complex with two friends; one was the architect who designed it and the other, the developer who built and owns it. The exterior was gorgeous and appropriate. The amenities were unique and clever. The units appeared to be attractive and reasonable for the market…that is until we entered the kitchen. This room was comprised of dark hardwood floors, rich wood cabinetry, stainless appliances and a builder-grade white laminate counter (that stuck out like a sore thumb). I winced. I looked to my architect friend- who gave me the ‘this isn’t the time’ slight head shake. We continued the tour.  Later, I took the architect aside and asked ‘What the [email protected]*k was that?’ He explained that there were originally granite counters spec’ed, but that they were lost in the V.E. process. To me, this was yet another example of the bad results of not training our young developers to know the difference between a good and a bad decision. It’s the problem of not teaching them that development happens in the real world- not on a spreadsheet. Which brings me to our theme; ‘Whenever there is a decision, there is always a good decision to be made.’ Now I’m not saying that every decision has an option which is ideal, just that there are always better and worse choices. When, as developers, we accept the opportunity to reshape the world around us, we also take on the responsibility to understand the ramifications of the decisions......
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The Apartment Building Investment Triple Opportunity Is Right Now

For value investors, Demand, Supply and the Cost of Acquisition are the three factors affecting the apartment building investment decision and all are saying the time to buy is now.  There is a tidal wave of new renters coming into the market and there has been little apartment construction to meet this growing demand. Outside of the gateway cities the prices of existing apartment buildings remain below the cost of building new.  Fixed rate financing is available for apartment buildings at rates lower than we will see again for years if not decades. “The multifamily sector is probably the only commercial real estate sector that has very positive fundamentals behind it,” said Jeffrey Baker, managing director at Savills LLC, a real estate investment bank that raises capital for multifamily owners and developers. “You’ve got a demographic that is producing more households that want to rent an apartment. You’ve got virtually no new supply that’s been added over the last several years.”1 Demand = DEMOGRAPHICS The population of the US has grown 10% since 2000 to 308.7 million. If population growth keeps its current pace and the average household size does not increase further, household growth must pick up to at least 1.1 million per year. Even the slightest decline in household size would allow housing demand to grow by 1.3 million annually. A combination of improving household growth and a steady or falling homeownership rate will produce the strongest growth in rental demand since the 1980s. CBRE Econometric Advisors2 There are......
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Real Estate Investment Options and Basic Human Needs

Why You Need to Consider Multifamily Real Estate Investment Properties. When comparing different real estate investment options, it is important to look at key factors in addition to just the income they produce and the purchase price.  When looking at different real estate investment options, our team likes to invest in properties that fill a profoundly necessary need that will always be in demand, and that need is shelter.  Commercial real estate properties containing businesses (retail and office) have been declining every year. Businesses continue to have a variety of options available to them for locating their businesses. Their businesses can be located in an office building or in the basement of a home, or they can even use technology to make their businesses virtual, requiring a minimum of space. Businesses can store files in a warehouse, in the cloud, or on a thumb drive. They can stockpile large inventories or stay lean and order as needed. It is all reflected in the cost to run the business and affects the amount of space they need. My wife's employer is based in Texas and over 50% of their employees work from home, and connecting online. The internet has created less demand for retail space as consumers no longer have to rely on companies down the road to purchase goods and services.  They now have virtual stores they can shop from and have their purchases delivered right to their doors diminishing the need for retail space.  Companies are always scrutinizing the use of......
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Path to Partnership; The Apartment Developer's Dilemma

I have been fortunate to have the occasion to work with a group of promising young folks and get to hear their hopes and expectations. As I listen, I can’t help but think back to my own career path and chuckle at how little changes generationally. Their wants are no different than mine were at their age. Their frustrations that it all happens too slowly are the same. Their fundamental lack of understanding is heartwarming, as are their expectations.  Since early in our careers, those of us who are smart, hard-working and motivated have generally focused on the idea of ownership. We see the entrepreneurs who employ us and want to be similar. They embody a version of our concept of success. When we are young, being a partner means having a seat at the grown-ups table. It’s our opportunity to affect change or enable our visions. It’s the gateway to profit and security. There may even be a little pride in the title of ‘owner’ which we covet- if we’re confident enough to admit it. But because we are smart, hard-working and motivated; we also want things well before we’re ready for them, before we even understand what it is that we think we want. Of course we don’t recognize that we’re not ready; after all we have been told that we are bright and unique snowflakes since we were three years old. So I thought that I might offer some ‘tough love’ advice and words of wisdom to the......
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