Year in Review Metropolitan Milwaukee Lauenstein & Associates Stephen Lauenstein, MAI Dan Wilkins...
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Transcript of Year in Review Metropolitan Milwaukee Lauenstein & Associates Stephen Lauenstein, MAI Dan Wilkins...
Year in ReviewYear in ReviewMetropolitan MilwaukeeMetropolitan Milwaukee
Lauenstein & AssociatesLauenstein & AssociatesStephen Lauenstein, MAIStephen Lauenstein, MAI
Dan Wilkins – Apartment MarketDan Wilkins – Apartment Market
Scott Chapko – Condo and Vacant Land Scott Chapko – Condo and Vacant Land MarketMarket
Multi-Family MarketMulti-Family MarketMetropolitan MilwaukeeMetropolitan Milwaukee
Dan WilkinsDan Wilkins
Lauenstein & AssociatesLauenstein & Associates
OverviewOverview
• Risk Level - Multi-family InvestmentsRisk Level - Multi-family Investments
• Capitalization RatesCapitalization Rates
• Vacancy/Collection Loss RatesVacancy/Collection Loss Rates
• Rent and Expense LevelsRent and Expense Levels
• Sales Activity/Marketing TimesSales Activity/Marketing Times
• Liquidation ValuesLiquidation Values
What Determines Risk What Determines Risk Level?Level?
• LocationLocation
• ManagementManagement
• ConditionCondition
• Occupancy/Current RentsOccupancy/Current Rents
Example of High RiskExample of High Risk
Example of Medium RiskExample of Medium Risk
Example of Low RiskExample of Low Risk
Capitalization RatesCapitalization 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 RatesEffect of Loan Terms on Cap Rates– LTV and Amortization TighterLTV and Amortization Tighter– Interest Rates Still Very LowInterest Rates Still Very Low– Risk Factor Matters!Risk Factor Matters!
Risk Factors vs. Cap Rate & Risk Factors vs. Cap Rate & ValueValue
• AssumptionsAssumptions
– 5.75% Interest Rate5.75% Interest Rate– 25 Year Amortization25 Year Amortization– 75% LTV75% LTV– $100,000 NOI$100,000 NOI
Risk Factors vs. Cap Rate & Risk Factors vs. Cap Rate & ValueValue
Risk Factor Cap Rate Value7.50% 7.54% $1,326,26010.00% 8.16% $1,225,49012.50% 8.79% $1,137,65615.00% 9.41% $1,062,699
Risk Factors vs. Cap Rate & Risk Factors vs. Cap Rate & ValueValue
$1,000,000
$1,050,000
$1,100,000
$1,150,000
$1,200,000
$1,250,000
$1,300,000
$1,350,000
$1,400,000
7.50% 10.00% 12.50% 15.00%
Risk Factor
Val
ue
Vacancy/Collection Loss Vacancy/Collection Loss RatesRates
• 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 What if Actual Vacancy exceeds 15%?15%?– Higher Risk Factor in Cap RateHigher Risk Factor in Cap Rate– Deduction for Rent LossDeduction for Rent Loss
Rent LevelsRent Levels
• Two-Bedroom Apartment as a ModelTwo-Bedroom Apartment as a Model
• Level Depends on Size, Amenities, Level Depends on Size, Amenities, and Risk Factorsand Risk Factors– Low Risk: $850-$1600Low Risk: $850-$1600– Medium Risk: $700-$1000Medium Risk: $700-$1000– High Risk: $475-$650High Risk: $475-$650
Expense LevelsExpense Levels
• Considered with Stabilized PropertiesConsidered with Stabilized Properties
• Owner Paid HeatOwner Paid Heat– Low Risk: 42.5%-47.5%Low Risk: 42.5%-47.5%– High Risk: 47.5%-55%High Risk: 47.5%-55%
• Tenant Paid HeatTenant Paid Heat– Low Risk: 37.5%-42.5%Low Risk: 37.5%-42.5%– High Risk: 42.5%-50%High Risk: 42.5%-50%
Sales ActivitySales Activity
• Still Activity in Lower Risk AreasStill Activity in Lower Risk Areas
• Deal SeekersDeal Seekers– Helps to know insidersHelps to know insiders
• Seller Under DuressSeller Under Duress
• Bank-Owned Properties- Special Bank-Owned Properties- Special FinancingFinancing
• Buyer’s Market due to FinancingBuyer’s Market due to Financing– 75% LTV vs. 90% LTV75% LTV vs. 90% LTV
Liquidation ValuesLiquidation Values
• Typical Marketing Time- Six to 12 MonthsTypical Marketing Time- Six to 12 Months
• Seller Need for Quicker SaleSeller Need for Quicker Sale
• Liquidation ValueLiquidation Value– 0-90 Days0-90 Days– 20%-30% Value Discount20%-30% Value Discount
• Disposition ValueDisposition Value– 90-180 Days90-180 Days– 10%-20% Value Discount10%-20% Value Discount
ConclusionConclusion
• Apartments Are a Good InvestmentApartments Are a Good Investment– Low Risk (As Always)Low Risk (As Always)– High Return in Current ClimateHigh Return in Current Climate
• Assess the Risk LevelAssess the Risk Level
• Make Calculated DecisionsMake Calculated Decisions
Condo and Vacant Land Condo and Vacant Land MarketMarket
Metropolitan MilwaukeeMetropolitan Milwaukee
Scott A. ChapkoScott A. Chapko
Lauenstein & AssociatesLauenstein & Associates
Condominium Condominium DevelopmentsDevelopments
Ener-Con Companies Ener-Con Companies (Ms. Paulanne Phillips 414-425-3134)(Ms. Paulanne Phillips 414-425-3134)
• Library Square, CudahyLibrary Square, Cudahy
• Six Points East, West AllisSix Points East, West Allis
• Franklin Oaks, FranklinFranklin Oaks, Franklin
Library Square, CudahyLibrary Square, Cudahy
Library Square, CudahyLibrary Square, Cudahy
• Purchased as a Foreclosure (30 of 31 Purchased as a Foreclosure (30 of 31 Units), About $500,000 in Finishes/ Units), About $500,000 in Finishes/ Repairs Needed Repairs Needed
• Included 28 Units of Condo LandIncluded 28 Units of Condo Land• Sold 29 Units in One Year Sold 29 Units in One Year • Original Prices $118,000 to $210,000Original Prices $118,000 to $210,000• Sale Prices $79,900 to $144,000 Sale Prices $79,900 to $144,000
Averaging $115,438Averaging $115,438• Sale Prices per SF $89.16 to $134.23 Sale Prices per SF $89.16 to $134.23
Averaging $110.24Averaging $110.24
Six Points East, West AllisSix Points East, West Allis
Six Points East, West AllisSix Points East, West Allis
• Purchased Mortgage from Bank (41 Mostly Purchased Mortgage from Bank (41 Mostly Completed Condo Units and 19,000 SF Completed Condo Units and 19,000 SF Retail, Approx. $1,100,000 To Complete)Retail, Approx. $1,100,000 To Complete)
• Sold 21 Units Since March 2010Sold 21 Units Since March 2010• Original Prices $151,000 to $430,000Original Prices $151,000 to $430,000• Sale Prices $102,358 to $234,900 Sale Prices $102,358 to $234,900
Averaging $136,772Averaging $136,772• Sale Prices per SF $77.96 to $116.55 Sale Prices per SF $77.96 to $116.55
Averaging $101.95 Averaging $101.95
Franklin Oaks, FranklinFranklin Oaks, Franklin
Franklin Oaks, FranklinFranklin Oaks, Franklin
• Purchased as a Foreclosure (29 Completed Purchased as a Foreclosure (29 Completed Units and 16 Units of Condo Land)Units and 16 Units of Condo Land)
• Sold 5 Units since July 2010Sold 5 Units since July 2010
• Original Prices $115,000 to $200,000Original Prices $115,000 to $200,000
• Sales/Asking Prices $79,900 to $154,900Sales/Asking Prices $79,900 to $154,900
• Sales/Asking Prices per SF App. $78.00 to Sales/Asking Prices per SF App. $78.00 to App. $120.00, Averaging App. $95.00 App. $120.00, Averaging App. $95.00
Single Family SubdivisionsSingle Family Subdivisions
• Victoria Station, PewaukeeVictoria Station, Pewaukee
• Belle Chasse, MuskegoBelle Chasse, Muskego
• Woodland Creek Estates, MuskegoWoodland Creek Estates, Muskego
Victoria Station, PewaukeeVictoria Station, Pewaukee
Victoria Station, PewaukeeVictoria Station, Pewaukee
• Bank Foreclosed and is now Selling Bank Foreclosed and is now Selling Individual Lots at Substantial Individual Lots at Substantial DiscountsDiscounts
• Sold 22 Lots since April 2010Sold 22 Lots since April 2010
• Sale/Asking Prices $59,900 to $89,900Sale/Asking Prices $59,900 to $89,900
• Previous Asking Prices $129,900 to Previous Asking Prices $129,900 to $184,900 $184,900
Belle Chasse, MuskegoBelle Chasse, Muskego
Belle Chasse, MuskegoBelle Chasse, Muskego
• Developer OwnedDeveloper Owned
• Sold 7 Lots in 2010Sold 7 Lots in 2010
• Sale Prices $78,000 to $122,500Sale Prices $78,000 to $122,500
• Previous Asking Prices $112,000 to Previous Asking Prices $112,000 to $155,000 $155,000
Woodland Creek Estates, Woodland Creek Estates, MuskegoMuskego
Woodland Creek Estates, Woodland Creek Estates, MuskegoMuskego
• Developer OwnedDeveloper Owned
• Sold 10 Lots in 2010Sold 10 Lots in 2010
• Sale Prices $86,900 to $127,500 Sale Prices $86,900 to $127,500
Bulk Condominium/Single-Family Bulk Condominium/Single-Family LandLand
• South 123rd Street, South of Wildcat South 123rd Street, South of Wildcat Creek Condos, GreenfieldCreek Condos, Greenfield
• Meadows at Hunter Ridge, Kenosha Meadows at Hunter Ridge, Kenosha
• Ramsey Meadows West, GreenfieldRamsey Meadows West, Greenfield
• Orchard Estates, Mt. PleasantOrchard Estates, Mt. Pleasant
South 123rd Street, South of South 123rd Street, South of Wildcat Creek Condos, Wildcat Creek Condos, GreenfieldGreenfield
South 123rd Street, South of South 123rd Street, South of Wildcat Creek Condos, Wildcat Creek Condos, GreenfieldGreenfield• Foreclosed in Spring 2010Foreclosed in Spring 2010
• Original Developer Paid $425,000 for Original Developer Paid $425,000 for Raw Land in Dec. 2006 (14 Units)Raw Land in Dec. 2006 (14 Units)
• Installed Site Infrastructure (App. Installed Site Infrastructure (App. $800,000)$800,000)
• Bank Sold within 2 Months (July Bank Sold within 2 Months (July 2010) for $225,743, $16,125 per Unit 2010) for $225,743, $16,125 per Unit
Meadows at Hunter Ridge, Meadows at Hunter Ridge, KenoshaKenosha
Meadows at Hunter Ridge, Meadows at Hunter Ridge, KenoshaKenosha
• Foreclosed (37 Single-Family Lots, All Foreclosed (37 Single-Family Lots, All Infrastructure Completed)Infrastructure Completed)
• Bank Sold the Remaining 37 Single-Bank Sold the Remaining 37 Single-Family Lots to One Investor in March Family Lots to One Investor in March 2010 for $900,000, $24,324 Per Lot 2010 for $900,000, $24,324 Per Lot
Ramsey Meadows West, Ramsey Meadows West, GreenfieldGreenfield
Ramsey Meadows West, Ramsey Meadows West, GreenfieldGreenfield
• Foreclosed (20 Single-Family Lots, All Foreclosed (20 Single-Family Lots, All Infrastructure Completed)Infrastructure Completed)
• Bank Sold the Remaining 20 Single-Bank Sold the Remaining 20 Single-Family Lots to Kaerek Homes in August Family Lots to Kaerek Homes in August 2010 for $1,030,000, $51,500 Per Lot2010 for $1,030,000, $51,500 Per Lot
• Buyer not concerned with price paid Buyer not concerned with price paid but wanted a subdivision to build spec but wanted a subdivision to build spec houses for profit on future spec homes houses for profit on future spec homes
Orchard Estates, Mt. PleasantOrchard Estates, Mt. Pleasant
Orchard Estates, Mt. Orchard Estates, Mt. PleasantPleasant
• Pre-Foreclosure (18 Single-Family Pre-Foreclosure (18 Single-Family Lots, All Infrastructure Completed)Lots, All Infrastructure Completed)
• Original Developer Sold the Original Developer Sold the Remaining 18 Single-Family Lots to Remaining 18 Single-Family Lots to another Developer in November another Developer in November 2009 for $585,000, $32,500 Per Lot2009 for $585,000, $32,500 Per Lot
ConclusionsConclusions
• Condominiums, Single-Family Lots, and Bulk Condominiums, Single-Family Lots, and Bulk Land are showing signs of salesLand are showing signs of sales
• Sales are at substantial discountsSales are at substantial discounts• Indicates demand for “Deal Hunters”Indicates demand for “Deal Hunters”• Most other developments have experienced Most other developments have experienced
very slow sales (0-6 Condo Sales, 0-4 Lot very slow sales (0-6 Condo Sales, 0-4 Lot Sales in 2010) with not substantially Sales in 2010) with not substantially discounted pricingdiscounted pricing
• Absorption rates increasingAbsorption rates increasing• Sale prices decreasing or similar from 2009Sale prices decreasing or similar from 2009