Multifamily has been called the darling of commercial real estate. Kenny Stevens and Heidi Prosser, two successful multifamily brokers in the Santa Monica (Calif.) market center, have given new meaning to the word “darling.”
About a decade ago, the co-founders of Prosser Stevens Real Estate Investments started out as competitors at Marcus & Millichap. When Prosser left the firm, she handed one of her listings over to Stevens and the two celebrated the sale over a drink.
“Kenny joked that he wanted to be part of the Heidi Prosser Group and I joked that I wanted Kenny to be the all-star of the Heidi Prosser Group,” recalls Prosser. “We built a strong friendship over the years of working in this market.” Little did they know that just a few years later they would be business partners – and engaged to be married.
It’s all in the Multifamily
Under their new name, the Prosser Stevens Real Estate Investments team focuses exclusively on multifamily investment properties. They cater to private investors – typically syndicators and high-net-worth individuals who spend anywhere from $2 million to $8 million for apartment communities. Their average selling price is 99 percent of listed prices, thanks to the marketing efforts they do throughout the Greater Los Angeles brokerage community and to their connection with local investors.
It’s paying off. In 2011, they grossed a combined $1.3 million in commissions. This year they are on target to gross about $2.2 million. In terms of volume, the firm closed $55.8 million worth of deals in 2012 and $15.8 million in the first four months of 2013.
The reason for this uptick: Renters have been moving out of shadow-market inventory and back into traditional multifamily product. For investors, that equals steady growth.
In fact, The University of Southern California’s Lusk Center for Real Estate Casden Multifamily Forecast predicts another year of rent increases in the Greater Los Angeles area. The future health of the multifamily market, they add, will continue to be determined by employment, home prices, shadow-market inventory and oil prices.
From Stevens’ perspective, low interest rates are a huge factor in the multifamily acquisition arena. “There are so many millions of dollars on the sidelines right now earning little or no interest. Private investors are willing to buy a building that has only a small return with the hope that it will to increase over the years. I expect opportunities in the multifamily sector to pick up in four or five years as the capital markets change.”
Stevens says most investors are avoiding the 30-year fixed loans. Instead, their locking in fixed rates for five, seven or as many as 10 years. He’s betting that at some point in the near future these fixed rates are going to turn into variable rates. Of course, no one can predict exactly where interest rates will be in the next five years. But, he says if rates continue to rise to seven, eight or nine percent; investors will find it difficult to refinance, ultimately impacting values.
Kim Betancourt, Fannie Mae director of multifamily economics and market research, backed up Steven’s observations in a recent interview on HousingWire.com.
"Multifamily is the least volatile and investors realize it’s a viable property sector that has been performing over the years," she says. Adding that, "multifamily has been steady across the broad after a little dip in late 2009 through early 2010, and that’s because the sector provides people with affordable ways to live."
All of this activity means demand of multifamily product is beginning to thin out inventory; though Prosser and Stevens are confident that there will be enough opportunities for the right investor.
“It’s harder now than it was a year ago to get multifamily listings,” admits Stevens. “For a very long time buyers were in control of price because they were so scarce. Today, sellers want top-of-the-market prices and motivated buyers want to act.”
Which, says Stevens, “requires a lot of finesse to get a deal closed.”