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Apartment loans low rates
Multifamily loan rates and Commercial loans

CAP Rates For Apartment/Multifamily Properties in New Orleans, Louisiana

Multifamily Apartment Cap Rates
Rates as of: 08/05/2021
Description Cap Rate
Luxury Metro A Class 4.38
Luxury Metro B Class 4.70
Luxury Metro C Class 5.20
Suburban A Class 4.62
Suburban B Class 5.00
Suburban C Class 5.48
Value Added Acquisition 6.00

Multifamily Apartment Cap Rates

About Multifamily Apartment Cap Rates Today

By Terry Painter/Mortgage Banker 

Author of: “The Encyclopedia of Commercial Real Estate Advice

Member of the Forbes Real Estate Council

 

 Why are Multifamily Apartment Cap Rates so Low?

In 2008 when the Great Recession hit, multifamily property values went down or remained flat. The recession was caused by a 6 year bull-market where commercial real estate prices kept going up reaching unrealistically high prices.  Today we are still in the Corona-Virus Recession which unlike the previous recession was caused by a pandemic.  But surprisingly, multifamily apartment properties in this recession have been going up in value pushing cap rates in a downward trend. Why has this happened?  First, this is thought to be due to an increased need for housing with vacancies averaging just below 5%.  This has been compounded by low inventory on properties for sale and the decrease in multifamily construction starts. Banks are barely lending on new commercial construction due to the uncertainty of market rents, rental concessions, rental collections, and the time for absorption.  Secondly, with retail, office and hospitality properties tanking, more investors are fleeing to the safety of investing in multifamily properties.  

Are you Buying or Selling at the Top of the Market?

 So how do you know if you are buying at the top of the market?   Supply and demand is the largest control factor on prices.  If there are very few properties for sale in the property class and neighborhood you are shopping in and almost no new construction starts, this is a sign you are purchasing at the top of the market. It is essential to look at the relationship between low cap rates, low net operating income and how much time it might take you to raise rents and realize the return on your investment.    Most buyers pay too much for commercial properties when cap rates are historically low, rationalizing that rents can be raised over time.  But how much time are we talking about?  If it is going to take more than a year for you to reach the cash on cash return you want by raising rents, you are likely paying too much for the property.  Once unemployment and GDP return to normal, there will be more apartment construction starts which should eventually supply more units in the market than demand. This will be a much better time to buy.

But if you absolutely have to purchase an apartment property now that has an unattractively low cap rate because you have a 1031 exchange, or cash just sitting there, it is important to ask yourself these two questions:  1.) With such a low return on your cash investment, is it worth it to wait until you can increase rents and eventually increase net operating income and property value?  Right now, as in most recessions, rents are flat. This means it could take 2 years or longer for rents to increased enough for you to get a decent cash on cash return.  2.) To mitigate this, does the property already have under market rents, or offer some low cost operational and/or cosmetic value adds that will allow you to increase rents within a year?  These could include lowering expenses – perhaps managing the property yourself, and adding new paint, floor coverings appliances and fixtures.

Cap Rates for Multifamily Apartment Properties are Holding at Historical Lows   

Cap Rates for Multifamily Apartment properties are holding at a historical low for 2021- averaging a 5 cap or even lower for newer A and B Class, and 5.34 for C Class.  Value Add Acquisitions are priced at an all-time high averaging a 6 cap. So be wary of overpaying for a property that needs major repositioning or rehab.  Unless you can buy it at a very good price per unit, this is not the best time to go this route.  With the uncertainty of future market rents, new construction starts, rental concessions and absorption times, this can represent a large risk. An even bigger risk is going over your rehab construction budget and taking too much time to complete the construction. 

 

In the first chapter of my book, “The Encyclopedia of Commercial Real Estate Advice” I discuss the four phases of the real estate market cycle and the best time to buy.  The market cycle causes there to be winners and losers.  Winners are the sellers that sell at the top of the market.  Losers are buyers who buy at the top of the market.

 

The end of the recession phase when distressed commercial properties are foreclosed on is a good time to buy.  This is followed by the recovery phase when unemployment has gone down and GDP has gone up.  This is a great time to buy.  Then comes the expansion phase - the beginning of which is still a good time to buy.  But because it is now a sellers-market, prices are going up again.  Next comes the hyper-supply phase which is the worse time to buy.  Prices are just too high, cap rates are insanely low, but there is an oversupply of units on the market due to new apartment building starts and completed rehab projects. It’s unbelievable, that investors are still paying too much for properties – sure that prices will go even higher.  You won’t know when the next phase of the real estate market cycle will start, but you can learn to identify which phase you are in so you can make intelligent decisions on purchasing and selling.  

 

 

DON’T FALL INTO THE CAP RATE TRAP

“Are you kidding me?” my client asked.  “You’re telling me that the property taxes are going up by $19,500 when the county reassess the property I’m buying based on the purchase price after I own it?”

“Yes”, I answered.  “In California they do that.” 

“Well then”, he said, “ that means I’m buying the property for a 4.70 cap instead of the 6 cap the listing agent said it was. That means I’m getting ripped off and the listing agent lied to me. Why would he put the seller’s lower property taxes in the list of expenses and calculate a 6 cap? This is the only property I’ve identified in my 1031 exchange.  What am I going to do?”     READ MORE

About the New Orleans, Louisiana Real Estate Market in 2021

In the city of New Orleans, the lakefronts are becoming a location where developers of real estate are doing residential construction for high-end investors.

What is an important cause of this type of development? It’s that there is increasing desire for luxury homes in New Orleans. With great views, lake front locations are high end property. The demand is fed by great views of the Mississippi River as well as Lake Pontchartrain.

An important factor is that it is the way the city of New Orleans will be able to pull in jobs needed for high income construction occurring in New Orleans. The city has a strong interest in creating a greater number of upper income work opportunities.

An important factor though is that New Orleans’ high priced condominium market is pricewise at the upper end.

Now onto commercial real estate:

There is a university in New Orleans named Tulane University that has began new construction on a new $55 million facility which is three stories and named the Commons. The building will serve multipurpose needs, and is scheduled to open in 2019. It will house on a permanent basis Newcomb College Institute, a new hall for dining, and meeting spaces that are multipurpose.

Concerning another property, Felicity Property Company, a development company held a meeting in the neighborhood and shared their plans for their new construction which will be located at 1300 Magazine Street. The name of this new development is The Framework. Several buildings surrounding a central courtyard will be featured. 

All of the buildings will have commercial and retail on the ground floor and have office space occupying the 2nd floor.

U.S. National-Level CAP Rates and Expected Rates of Return by Property Type, Sector, Class and/or Segment

   

Stabilized Property Acquisitions

Value-Add Property Acquisitions

   
CAP Rate
 
AD Over 10-Yr Treasury
Expected Return on Cost 
 
AD Over 10-Yr  Treasury
Property Type
​Sector
Class/
Segment
H1 2017
(%)
H2 2017
(%)
Change
(bps)
H1 2017 (%)
EOP 1.49
H2 2017 (%)
EOP 2.45
H1 2017
(%)
H2 2017
(%)
Change
(bps)
H1 2017(%)
EOP 1.49
H@ 2017 (%)
EOP 2.45
Office
CBD
ALL 6.61 6.63 2 512 418 8.22 8.24 2 673 579
AA 5.19 5.24 5 370 279 - - - - -
A 5.95 5.99 4 446 354 7.12 7.10 -2 563 465
B 6.85 6.84 -1 536 439 8.02 8.03 2 653 558
C 8.61 8.64 3 712 619 9.83 9.8 6 834 744
Office
Suburban
ALL 7.64 7.76 11 615 531 9.21 9.33 11 772 688
AA 6.20 6.31 11 471 386 - - - - -
A 6.96 7.07 11 547 462 8.06 8.18 12 657 573
B 7.97 8.13 16 648 568 9.20 9.27 7 771 682
C 9.30 9.46 16 781 701 10.45 10.60 15 896 815
 
Industrial
ALL
ALL 6.72 6,73 1 523 428 7.71 7.74 3 622 573
A 5.48 5.54 5 399 309 6.34 6.41 8 485 396
B 6.59 6.52 -7 510 407 7.53 7.53 0 604 508
C 8.13 8.16 4 644 571 9.31 9.33 3 782 688
 
Retail 
Neighborhood
Community
ALL 6.94 7.12 18 545 467 7.92 8.14 22 643 569
A 5.62 5.66 4 413 321 6.59 6.85 26 510 440
B 6.83 7.03 20 534 458 7.81 8.00 19 632 555
C 8.39 8.68 29 690 623 9.36 9.58 22 787 713
Retail
Power
ALL 7.36 7.54 18 587 509 8.25 8.47 22 676 602
A 6.11 6.16 5 462 371 7.21 7.31 10 572 486
B 7.30 7.47 16 581 502 8.06 8.40 34 657 595
C 8.70 9.03 33 721 658 9.52 9.74 22 803 729
Retail
High Street
                     
A 4.23 4.37 13 274 192 - - - - -
                     
 
Multifamily
Infill
ALL 5.26 5.32 6 377 287 5.95 6.03 8 446 358
A 4.60 4.67 8 311 222 5.34 5.41 7 385 296
B 5.15 5.20 5 366 275 5.78 5.87 9 429 342
C 6.06 6.12 6 457 367 6.75 6.81 7 526 436
Multifamily
Suburban
ALL 5.67 5.74 7 418 329 6.33 6.45 11 484 400
A 5.01 5.10 10 352 265 5.62 5.71 9 413 326
B 5.53 5.61 8 404 316 6.16 6.26 10 467 381
C 6.48 6.50 2 499 405 7.22 7.37 15 573 492
 
Hotels
CBD
ALL 7.85 7.91 6 636 546 - - - - -
LUXURY 6.83 6.92 8 534 447 - - - - -
FULL SERVICE 7.55 7.62 8 606 517 - - - - -
SELECT SERVICE 7.94 8.01 8 645 556 - - - - -
ECONOMY 9.10 9.11 1 761 666 - - - - -
Hotels
Suburban
ALL 8.39 8.44 5 690 599 - - - - -
LUXURY 7.42 7.50 7 593 505 - - - - -
FULL SERVICE 8.07 8.14 7 658 569 - - - - -
SELECT SERVICE 8.46 8.53 7 697 608 - - - - -
ECONOMY 9.59 9.58 -1 810 713 - - - - -