Why Averages Lie
Patrick Antrim, CEO of Multifamily Leadership says he was trained by a developer, and they tend to have a long-term view of things. A syndicator might not bother to fix long-term problems, which affects the brand. Now, Tanner Bickelhaupt is starting developing work.
Mark Taylor was the manager for the first deal Tanner Bickelhaupt ever syndicated.
“We kind of take things from different management companies. Each one has a different strength. But Mark Taylor with data in particular… it just can provide some clarity sometimes when things are out of skew,” said Bickelhaupt.
(3:54) – Averages from deal points can get lost in the mix.
From the investor perspective, Bickelhaupt gave the example of LP investors who ask for a track record.
“They get it, but they’re not really sure what they’re looking at. Some companies will boast, ‘We’ve had a 30% IRR’ – I’m just making that up, but a round number. But when you go through an you look, there’s anomalies in there.”
He’d rather track NOI growth.
“I will look at deals, underwrite deals, and it’ll be 10 million dollars more but the NOI hasn’t changed. In fact, sometimes it’s gone a bit different where expenses have gone up a bit. But because of the cap rate compression, they’ve been saved. So that can be tough.”
(6:00) – Make sure you have a firm view of the project. Look at all the averages. 700 square feet for a unit isn’t a universal measurement – it could mean you have a lot of hallways, or a lot of open space.
(7:18) – Just don’t count on average numbers.
“We joke all the time with the brokers, it’s always roses,” said Bickelhaupt. “There’s always a story, whether it’s mismanagement or what have you. ‘They’re so low, for no reason!’ There’s always a reason.”
(8:00) – Right now, brokers are pumping out Broker Opinion of Values (BOVs) all the time. That’s the how the Tanbic Company can fish for off-market deals.
“They can’t even necessarily talk about averages anymore. It used to be you’d get skeptical on a BOV – if the high BOV was too high, that could be a bad experience,” said Bickelhaupt.
Bickelhaupt suspects brokers have been smothering their BOVs for a few years.
(9:45) – Of course, you also have to think about unit size. A lot of brokers will churn out smaller units because they can. Renters are just looking for what they can get for their total available income, not necessarily price per foot.