CRE is pursuing a current acquisition strategy that focuses on multi-family developments with a minimum of ~100 units. Given the current underlying characteristics of the market in the Colorado Front Range and Phoenix metro areas, CRE believes the company will be able to find both individual properties and portfolios that will meet the company's underwriting criteria for both immediate cash flow and long-term yield.
To date, CRE has assembled a total portfolio of approximately $650 million, consisting of 25 properties and 4,897 units.
The CRE team is in a position to analyze how best to take advantage of opportunities to create value through either improved property management, improvements to occupancy and expense control, rehabilitation and revitalization of the immediate vicinity, or revenue enhancing capital upgrades.
Within the market, multi-family properties are generally divided into A, B, and C categories. Properties fall into these classifications by a combination of size, location, age, and quality. CRE has found outstanding properties to acquire in each of these categories. Our decision to move forward with the purchase of a property ultimately rests on our firm belief of the long-term viability of the investment.
Each acquisition is a separate investment entity and investors may review the property and the financial analysis to determine its suitability for that investor's goals. For investors seeking to make large commitments in a particular property or portfolio, CRE has been adept at finding a flexible partnership structure for a joint venture that will best meet the needs of CRE as the sponsor, as well as the yield and management requirements of the investor.
Our strategy is to purchase apartments with strong fundamentals of location and design with solid prospects for growth. The combination of current pricing, attractive financing terms and our management expertise will allow us to produce strong initial cash returns. Our focus is on the markets we know best.
Capital Real Estate was formed to be a vehicle where qualified investors can diversify their investment portfolio into stable, income producing real estate. With current savings interest rates at 1% levels, CRE looks for qualified apartment investments which underwrite to a potential 6% or greater immediate annual return.
With interest rates and mortgage terms at record lows, the Investment Strategy for Capital Real Estate is to identify stabilized apartment properties, perform extensive due diligence, negotiate the best mortgage terms, and finally acquire and implement quality property and asset management.
Apartments differ from other commercial asset classes because they are fundamentally a cash flow business. By contrast, in the case of commercial assets like office buildings and retail centers, investors typically make their returns, or fail to make them, upon disposition. Tenant improvements and leasing commissions can soak up cash flow and, as we have recently observed in this cycle, even “credit tenants” can fail.
Apartments fundamentally present lower risk. There are no tenant improvements or large leasing commissions and a single tenant can’t create a vacancy problem. As long as debt service is well covered, it is unlikely that either vacancy or dropping rents will result in any significant investment stress. This is reinforced by certain unique dynamics in the market during the past four years that included a compression of multifamily cap rates, positive cash-flow dynamics caused by historic low interest rates, and the reduced demand for single family homes. Our strategy is based on utilizing our market knowledge and management expertise to identify special opportunities and situations that are generally overlooked as a result of the rigid parameters set by institutional purchasers.
Apartment demand is expected to increase significantly over the next 20 years. The national home ownership rate rose to 69% in 2006 from the historical norm of 65%. Today, the rate is falling due to tighter credit, a weaker economy and a growing belief among potential buyers that owning a home is not a great investment. The national homeownership rate has now fallen to just 63%, the lowest it has been in over 20 years and it continues to fall even as the economy has recovered.
The Metro Denver Apartment Market has enjoyed a top national ranking in both occupancy and rent growth for most of this decade. CRE has identified the Colorado markets as stable and very likely for future appreciation.
Based on the enormous demand for apartments due to the current population, home prices, immigrations and lifestyle choices, Colorado should continue to outperform most U.S. markets.
Capital Real Estate was very successful at identifying the Metro Denver Market as a favorable investment opportunity in 2010. The Metro Phoenix market today is very similar to where Denver was then.
The creation of jobs, a recovering housing market, and the ability to purchase at a significant discount to replacement cost is usually a recipe for success. Add this to the ability to place long-term favorable debt on these assets makes Phoenix a good target market for multifamily investment.
The current economic cycle offers the best opportunity to purchase multifamily assets in over 15 years. The combination of historically low interest rates from Fannie Mae and Freddie Mac, strong rental demand and low suburban construction volume allow for the purchase of multifamily assets at prices that are well below replacement cost.