Brian D. Milovich

It’s one of the few major asset classes that hasn’t recovered yet. The stock market was up 24% in 2023. Bond yields fell significantly from highs earlier in the year, meaning that prices soared to end 2023. Even Bitcoin rallied and returned 150% for the year. Apartments are attractive as they remain 20-30% off their highs from early 2022. Between improved cash flow and appreciation potential, multifamily real estate is set to outperform in 2024.

1. Phenomenal buying opportunity as time runs out for many owners.
2. Considerable new apartment supply creates tepid rent growth.
3. Insurance and other expenses will remain elevated, causing NOI (net operating income) to be flat or down from 2023.
4. We’ll get clarity on the 10-year US Treasury by Q3…either 3.5% or 5.5%.
5. Cash will be trash again.

Since 1978, apartment investments have produced a 9.3% annual return over rolling 10-year periods. There is not one 10-year period where apartments lost money. This is without using leverage and based on institutional properties and ownership. Apartments have been resilient and are known for stability, not excess risk-taking. Now that values are down from the peak by a wide margin, we must recalibrate expectations. Should they be even higher because of the great buying opportunity? Should returns be lower with more uncertainty and higher debt costs? It depends on the strategy and appetite for risk.

1) What are the top three danger signs you see in deal prospectuses you are reviewing?

1) Negative leverage. Some is ok if the business plan warrants it, but in today’s environment, the focus should be on positive cash flow. 2) Short-term rent growth. Most markets have an influx of new apartment supply which will push down rents and keep them flat. Prudent underwriting has below-average rent growth in the short term. Click here to see the rest

1) Why should I commit funds to multifamily now?

Multifamily is resilient. According to NCREIF, at no point in the past 45 years has apartment investments produced a negative return on a 10-year hold. With values well below peak pricing, this is an opportune time to buy.Click here to see the rest

“He often said that the key to investing success was doing nothing for years, even decades, waiting to buy with ‘aggression’ when bargains finally materialized.” Great investors need to fully believe in their investment thesis and wait patiently to deploy considerable capital at the opportune time.

1) Will Calvera’s ratio of debt/equity for acquisitions change in 2024?

I’m starting to see some acquisitions pencil to 70% loan-to-value (LTV) which is a big improvement from 9 months ago when it was closer to 55% LTV. Our fund has a LTV limit of 75% for any single asset and 65% for the portfolio. We find it promising to be within those ranges as we seek acquisitions in 2024. That means more properties for the Calvera Income and Growth Fund.Click here to see the rest

Why are people still extolling the virtues of bridge debt today? You won’t hear it from me, but here’s their argument: 1) the Fed is going to stop raising rates and you don’t want to be locked into fixed rate debt; 2) you can buy an “in-the-money” cap to bring the interest rate down from 9% to 7% or lower; and 3) a value-add business plan is going to raise net operating income, therefore allowing an investor the option of refinancing or selling during their three-ish year business plan. Never once do I hear any of these groups discuss that they’re taking on more leverage than the property can adequately sustain today.

At no point in the past 20 years can I recall spending so much time wondering about where this interest rate will go. Interest rates matter because they impact property values. Rates also impact capitalization (i.e., debt vs. equity amounts) and cash flow. Real estate is frequently a leveraged investment, meaning debt is used to finance the purchase. When debt is used, it can make a good investment great, and it can also turn a good investment bad.

Taxation is one of the hottest topics for our investors. Not only are they concerned about how much they might have to pay, but they’re also concerned with the potential hassle that tax reporting can create. When making an investment in real estate, it’s important to have a tax plan in mind and a full understanding of your filing requirements and the potential cost.