Year in Review Metropolitan Milwaukee Lauenstein & Associates Stephen Lauenstein, MAI Dan Wilkins – Apartment Market Scott Chapko – Condo and Vacant Land Market
Multi-Family Market Metropolitan Milwaukee Dan Wilkins Lauenstein & Associates
Overview Risk Level - Multi-family Investments Risk Level - Multi-family Investments Capitalization Rates Capitalization Rates Vacancy/Collection Loss Rates Vacancy/Collection Loss Rates Rent and Expense Levels Rent and Expense Levels Sales Activity/Marketing Times Sales Activity/Marketing Times Liquidation Values Liquidation Values
What Determines Risk Level? Location Location Management Management Condition Condition Occupancy/Current Rents Occupancy/Current Rents
Example of High Risk
Example of Medium Risk
Example of Low Risk
Capitalization Rates Low Risk: 7.00%-8.00% Low Risk: 7.00%-8.00% Medium Risk: 8.00%-8.75% Medium Risk: 8.00%-8.75% High Risk: 8.75%-10.00% High Risk: 8.75%-10.00% Effect of Loan Terms on Cap Rates Effect of Loan Terms on Cap Rates –LTV and Amortization Tighter –Interest Rates Still Very Low –Risk Factor Matters!
Risk Factors vs. Cap Rate & Value Assumptions Assumptions –5.75% Interest Rate –25 Year Amortization –75% LTV –$100,000 NOI
Risk Factors vs. Cap Rate & Value
Vacancy/Collection Loss Rates Low Risk: 3-4% Low Risk: 3-4% Medium Risk: 5-6% Medium Risk: 5-6% High Risk: 7-15% High Risk: 7-15% What if Actual Vacancy exceeds 15%? What if Actual Vacancy exceeds 15%? –Higher Risk Factor in Cap Rate –Deduction for Rent Loss
Rent Levels Two-Bedroom Apartment as a Model Two-Bedroom Apartment as a Model Level Depends on Size, Amenities, and Risk Factors Level Depends on Size, Amenities, and Risk Factors –Low Risk: $850-$1600 –Medium Risk: $700-$1000 –High Risk: $475-$650
Expense Levels Considered with Stabilized Properties Considered with Stabilized Properties Owner Paid Heat Owner Paid Heat –Low Risk: 42.5%-47.5% –High Risk: 47.5%-55% Tenant Paid Heat Tenant Paid Heat –Low Risk: 37.5%-42.5% –High Risk: 42.5%-50%
Sales Activity Still Activity in Lower Risk Areas Still Activity in Lower Risk Areas Deal Seekers Deal Seekers –Helps to know insiders Seller Under Duress Seller Under Duress Bank-Owned Properties- Special Financing Bank-Owned Properties- Special Financing Buyers Market due to Financing Buyers Market due to Financing –75% LTV vs. 90% LTV
Liquidation Values Typical Marketing Time- Six to 12 Months Typical Marketing Time- Six to 12 Months Seller Need for Quicker Sale Seller Need for Quicker Sale Liquidation Value Liquidation Value –0-90 Days –20%-30% Value Discount Disposition Value Disposition Value – Days –10%-20% Value Discount
Conclusion Apartments Are a Good Investment Apartments Are a Good Investment –Low Risk (As Always) –High Return in Current Climate Assess the Risk Level Assess the Risk Level Make Calculated Decisions Make Calculated Decisions
Condo and Vacant Land Market Metropolitan Milwaukee Scott A. Chapko Lauenstein & Associates
Condominium Developments Ener-Con Companies (Ms. Paulanne Phillips ) Library Square, Cudahy Library Square, Cudahy Six Points East, West Allis Six Points East, West Allis Franklin Oaks, Franklin Franklin Oaks, Franklin
Library Square, Cudahy
Purchased as a Foreclosure (30 of 31 Units), About $500,000 in Finishes/ Repairs Needed Purchased as a Foreclosure (30 of 31 Units), About $500,000 in Finishes/ Repairs Needed Included 28 Units of Condo Land Included 28 Units of Condo Land Sold 29 Units in One Year Sold 29 Units in One Year Original Prices $118,000 to $210,000 Original Prices $118,000 to $210,000 Sale Prices $79,900 to $144,000 Averaging $115,438 Sale Prices $79,900 to $144,000 Averaging $115,438 Sale Prices per SF $89.16 to $ Averaging $ Sale Prices per SF $89.16 to $ Averaging $110.24
Six Points East, West Allis
Purchased Mortgage from Bank (41 Mostly Completed Condo Units and 19,000 SF Retail, Approx. $1,100,000 To Complete) Purchased Mortgage from Bank (41 Mostly Completed Condo Units and 19,000 SF Retail, Approx. $1,100,000 To Complete) Sold 21 Units Since March 2010 Sold 21 Units Since March 2010 Original Prices $151,000 to $430,000 Original Prices $151,000 to $430,000 Sale Prices $102,358 to $234,900 Averaging $136,772 Sale Prices $102,358 to $234,900 Averaging $136,772 Sale Prices per SF $77.96 to $ Averaging $ Sale Prices per SF $77.96 to $ Averaging $101.95
Franklin Oaks, Franklin
Purchased as a Foreclosure (29 Completed Units and 16 Units of Condo Land) Purchased as a Foreclosure (29 Completed Units and 16 Units of Condo Land) Sold 5 Units since July 2010 Sold 5 Units since July 2010 Original Prices $115,000 to $200,000 Original Prices $115,000 to $200,000 Sales/Asking Prices $79,900 to $154,900 Sales/Asking Prices $79,900 to $154,900 Sales/Asking Prices per SF App. $78.00 to App. $120.00, Averaging App. $95.00 Sales/Asking Prices per SF App. $78.00 to App. $120.00, Averaging App. $95.00
Single Family Subdivisions Victoria Station, Pewaukee Victoria Station, Pewaukee Belle Chasse, Muskego Belle Chasse, Muskego Woodland Creek Estates, Muskego Woodland Creek Estates, Muskego
Victoria Station, Pewaukee
Bank Foreclosed and is now Selling Individual Lots at Substantial Discounts Bank Foreclosed and is now Selling Individual Lots at Substantial Discounts Sold 22 Lots since April 2010 Sold 22 Lots since April 2010 Sale/Asking Prices $59,900 to $89,900 Sale/Asking Prices $59,900 to $89,900 Previous Asking Prices $129,900 to $184,900 Previous Asking Prices $129,900 to $184,900
Belle Chasse, Muskego
Developer Owned Developer Owned Sold 7 Lots in 2010 Sold 7 Lots in 2010 Sale Prices $78,000 to $122,500 Sale Prices $78,000 to $122,500 Previous Asking Prices $112,000 to $155,000 Previous Asking Prices $112,000 to $155,000
Woodland Creek Estates, Muskego
Developer Owned Developer Owned Sold 10 Lots in 2010 Sold 10 Lots in 2010 Sale Prices $86,900 to $127,500 Sale Prices $86,900 to $127,500
Bulk Condominium/Single-Family Land South 123rd Street, South of Wildcat Creek Condos, Greenfield South 123rd Street, South of Wildcat Creek Condos, Greenfield Meadows at Hunter Ridge, Kenosha Meadows at Hunter Ridge, Kenosha Ramsey Meadows West, Greenfield Ramsey Meadows West, Greenfield Orchard Estates, Mt. Pleasant Orchard Estates, Mt. Pleasant
South 123rd Street, South of Wildcat Creek Condos, Greenfield
Foreclosed in Spring 2010 Foreclosed in Spring 2010 Original Developer Paid $425,000 for Raw Land in Dec (14 Units) Original Developer Paid $425,000 for Raw Land in Dec (14 Units) Installed Site Infrastructure (App. $800,000) Installed Site Infrastructure (App. $800,000) Bank Sold within 2 Months (July 2010) for $225,743, $16,125 per Unit Bank Sold within 2 Months (July 2010) for $225,743, $16,125 per Unit
Meadows at Hunter Ridge, Kenosha
Foreclosed (37 Single-Family Lots, All Infrastructure Completed) Foreclosed (37 Single-Family Lots, All Infrastructure Completed) Bank Sold the Remaining 37 Single-Family Lots to One Investor in March 2010 for $900,000, $24,324 Per Lot Bank Sold the Remaining 37 Single-Family Lots to One Investor in March 2010 for $900,000, $24,324 Per Lot
Ramsey Meadows West, Greenfield
Foreclosed (20 Single-Family Lots, All Infrastructure Completed) Foreclosed (20 Single-Family Lots, All Infrastructure Completed) Bank Sold the Remaining 20 Single-Family Lots to Kaerek Homes in August 2010 for $1,030,000, $51,500 Per Lot Bank Sold the Remaining 20 Single-Family Lots to Kaerek Homes in August 2010 for $1,030,000, $51,500 Per Lot Buyer not concerned with price paid but wanted a subdivision to build spec houses for profit on future spec homes Buyer not concerned with price paid but wanted a subdivision to build spec houses for profit on future spec homes
Orchard Estates, Mt. Pleasant
Pre-Foreclosure (18 Single-Family Lots, All Infrastructure Completed) Pre-Foreclosure (18 Single-Family Lots, All Infrastructure Completed) Original Developer Sold the Remaining 18 Single-Family Lots to another Developer in November 2009 for $585,000, $32,500 Per Lot Original Developer Sold the Remaining 18 Single-Family Lots to another Developer in November 2009 for $585,000, $32,500 Per Lot
Conclusions Condominiums, Single-Family Lots, and Bulk Land are showing signs of sales Condominiums, Single-Family Lots, and Bulk Land are showing signs of sales Sales are at substantial discounts Sales are at substantial discounts Indicates demand for Deal Hunters Indicates demand for Deal Hunters Most other developments have experienced very slow sales (0-6 Condo Sales, 0-4 Lot Sales in 2010) with not substantially discounted pricing Most other developments have experienced very slow sales (0-6 Condo Sales, 0-4 Lot Sales in 2010) with not substantially discounted pricing Absorption rates increasing Absorption rates increasing Sale prices decreasing or similar from 2009 Sale prices decreasing or similar from 2009