Jansen Multifamily Team Blog – Insight and commentary on the Seattle/Puget Sound apartment market

As 2009 comes to a close, the Puget Sound Apartment market is nursing a hangover brought about by the drunken bender of the previous 5-years.  Vacancies are rising.  Net Operating Incomes are dropping.  Underwriting standards are tightening.  The market is, for lack of a better phrase, “giving apartment owners headaches.”  Rather than retreat to the couch to sleep off the ill effects of the Anomaly Period binge, apartment owners need to attack the market “head-on” and take a proactive approach to the management of not just their properties, but their investment goals, as well.  The following practical steps will empower Puget Sound apartment owners to do just that:

• Know your goals as an apartment owner: Growing?  Liquidating? Status quo?  Do you need to increase cash flow in the short term to offset increased overhead?  Do you need to shore up your liquidity position?  Having the answers to questions such as these will enable you to empirically measure your investment goals against the actual performance of your assets, bringing clarity as to whether buying, selling, refinancing or simply holding is the right decision for you.

• Analyze the financial performance of your property: Dive into your property’s financial statements.  Are your operating costs in line with market?  Are delinquencies abnormally high? Are capital expenditures being reported above the NOI line? Is your property management company operating your property efficiently?  A clear understanding over every line-item on your financial reports can increase both cash flow and property value.

• Assess your current loan structure(s): What is the maturity date on each loan?  What is your interest rate?  Does the note call for yield maintenance or defeasance?  Can a second be added?  Refinance risk is real in this market, but it is a risk that can be mitigated with a clear understanding of your loan structure.
• Understand the capital markets: Who is lending money?  How are loans being sized?  What are the underwriting guidelines of the government sponsored entities?  The number of active lenders in the market has rapidly decreased over the last year; a skilled, reputable financing resource is priceless in this market.
• Know your competition: What rents and concessions are owners in your marketing offering to prospective tenants?  Which property is the “market leader?”  Knowing your competition enables you to position your property “ahead of the market” to win tenants.
• Track your market: Who is buying?  Who is selling?  Who is developing? What are the key pricing indicators?  Understanding the profile of active buyers and sellers in your market and the motivation behind their decisions will effectively position you for both acquisition and disposition opportunities.

Change is good.  Movement in the market, whether up or down, presents investors with opportunities to build immense wealth.  Hung-over investors will likely sleep their way through the bottom of the market; conversely, “hands-on” investors will use the hair of the dog that bit them to their advantage, i.e. leveraging their understanding of current market realities to outperform their competition.

The Jansen Multifamily Team uses the months of December and January to walk our clients through the above-listed steps.   Don’t hesitate to contact us today at 425-339-3638 or jjansen@coastsvn.com to schedule an annual review of your assets.