Year in Review Metropolitan Milwaukee Lauenstein & Associates Stephen Lauenstein, mai dan Wilkins – Apartment Market


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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



Overview

  • Risk Level - Multi-family Investments

  • Capitalization Rates

  • Vacancy/Collection Loss Rates

  • Rent and Expense Levels

  • Sales Activity/Marketing Times

  • Liquidation Values



What Determines Risk Level?

  • Location

  • Management

  • Condition

  • Occupancy/Current Rents



Example of High Risk



Example of Medium Risk



Example of Low Risk



Capitalization Rates

  • Low Risk: 7.00%-8.00%

  • Medium Risk: 8.00%-8.75%

  • High Risk: 8.75%-10.00%

  • 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

    • 5.75% Interest Rate
    • 25 Year Amortization
    • 75% LTV
    • $100,000 NOI


Risk Factors vs. Cap Rate & Value



Risk Factors vs. Cap Rate & Value



Vacancy/Collection Loss Rates

  • Low Risk: 3-4%

  • Medium Risk: 5-6%

  • High Risk: 7-15%

  • What if Actual Vacancy exceeds 15%?

    • Higher Risk Factor in Cap Rate
    • Deduction for Rent Loss


Rent Levels

  • Two-Bedroom Apartment as a Model

  • 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

  • Owner Paid Heat

    • Low Risk: 42.5%-47.5%
    • High Risk: 47.5%-55%
  • Tenant Paid Heat

    • Low Risk: 37.5%-42.5%
    • High Risk: 42.5%-50%


Sales Activity

  • Still Activity in Lower Risk Areas

  • Deal Seekers

    • Helps to know insiders
  • Seller Under Duress

  • Bank-Owned Properties- Special Financing

  • Buyer’s Market due to Financing

    • 75% LTV vs. 90% LTV


Liquidation Values

  • Typical Marketing Time- Six to 12 Months

  • Seller Need for Quicker Sale

  • Liquidation Value

    • 0-90 Days
    • 20%-30% Value Discount
  • Disposition Value

    • 90-180 Days
    • 10%-20% Value Discount


Conclusion

  • Apartments Are a Good Investment

    • Low Risk (As Always)
    • High Return in Current Climate
  • Assess the Risk Level

  • Make Calculated Decisions



Condo and Vacant Land Market Metropolitan Milwaukee

  • Scott A. Chapko

  • Lauenstein & Associates



Condominium Developments

  • Ener-Con Companies (Ms. Paulanne Phillips 414-425-3134)

  • Library Square, Cudahy

  • Six Points East, West Allis

  • Franklin Oaks, Franklin



Library Square, Cudahy



Library Square, Cudahy

  • Purchased as a Foreclosure (30 of 31 Units), About $500,000 in Finishes/ Repairs Needed

  • Included 28 Units of Condo Land

  • Sold 29 Units in One Year

  • Original Prices $118,000 to $210,000

  • Sale Prices $79,900 to $144,000 Averaging $115,438

  • Sale Prices per SF $89.16 to $134.23 Averaging $110.24



Six Points East, West Allis



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)

  • Sold 21 Units Since March 2010

  • Original Prices $151,000 to $430,000

  • Sale Prices $102,358 to $234,900 Averaging $136,772

  • Sale Prices per SF $77.96 to $116.55 Averaging $101.95



Franklin Oaks, Franklin



Franklin Oaks, Franklin

  • Purchased as a Foreclosure (29 Completed Units and 16 Units of Condo Land)

  • Sold 5 Units since July 2010

  • Original Prices $115,000 to $200,000

  • Sales/Asking Prices $79,900 to $154,900

  • Sales/Asking Prices per SF App. $78.00 to App. $120.00, Averaging App. $95.00



Single Family Subdivisions

  • Victoria Station, Pewaukee

  • Belle Chasse, Muskego

  • Woodland Creek Estates, Muskego



Victoria Station, Pewaukee



Victoria Station, Pewaukee

  • Bank Foreclosed and is now Selling Individual Lots at Substantial Discounts

  • Sold 22 Lots since April 2010

  • Sale/Asking Prices $59,900 to $89,900

  • Previous Asking Prices $129,900 to $184,900



Belle Chasse, Muskego



Belle Chasse, Muskego

  • Developer Owned

  • Sold 7 Lots in 2010

  • Sale Prices $78,000 to $122,500

  • Previous Asking Prices $112,000 to $155,000



Woodland Creek Estates, Muskego



Woodland Creek Estates, Muskego

  • Developer Owned

  • Sold 10 Lots in 2010

  • 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

  • Foreclosed in Spring 2010

  • Original Developer Paid $425,000 for Raw Land in Dec. 2006 (14 Units)

  • Installed Site Infrastructure (App. $800,000)

  • Bank Sold within 2 Months (July 2010) for $225,743, $16,125 per Unit



Meadows at Hunter Ridge, Kenosha



Meadows at Hunter Ridge, Kenosha

  • 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



Ramsey Meadows West, Greenfield



Ramsey Meadows West, Greenfield

  • 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

  • Buyer not concerned with price paid but wanted a subdivision to build spec houses for profit on future spec homes



Orchard Estates, Mt. Pleasant



Orchard Estates, Mt. Pleasant

  • 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



Conclusions

  • Condominiums, Single-Family Lots, and Bulk Land are showing signs of sales

  • Sales are at substantial discounts

  • 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

  • Absorption rates increasing

  • Sale prices decreasing or similar from 2009





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