Hello Measured Investors,

Welcome to The Measured Memo – a concise note that shares our perspective on private investing and income-producing real estate. We’ll comment on macro trends, provide strategy updates and share examples. We aim to make this the most value-packed email of your quarter…let’s go!

Market

The state of the multifamily real estate market can best be summed up by a high-grossing commercial broker: “it’s hard right now!” The market remains challenged due to a persistent gap in the bid-to-ask spread between buyer needs and seller expectations.

The requirements of today’s active buyers are much more strict than those buying two years ago. Investors are demanding higher in-place cap rates to justify a purchase. This is out of respect for their own capital, but also a result of our current lending environment. Lenders are much more restrictive, now requiring actual in-place income to increase loan amounts.

Some potential sellers are holding assets at prices unsupported in today’s market. However, if they have fixed-rate debt with a few years remaining, there’s no reason to panic. As long as operators keep buildings occupied at reasonable rents, they can decide to hold.

Of course, this gap between buyer costs and seller prices will eventually close. Transaction volume has been depressed, and as commercial loans typically have five to seven-year terms, more owners will face this impasse over time. This will eventually create motivated sellers who can no longer hold on.

Strategy

This is where we come in! Nearly every day, we analyze a deal financed by some form of bridge debt and an owner whose clock is ticking. However, in the current market, we are seeing the distress trickle out in an organized fashion. Investors are still holding out hope for a interest rate cut this year and change in credit markets to bail them out of this challenging situation.

In order to capitalize on any distress right now, you need to be very close to the rim. By that, I mean actively participating, every single day, in the the market. Persistently connecting with brokers and key partners has been key to get every ounce of intel on every deal and build trust. It’s critical to be known as a reputable group that can and will close.

The only way for our offers to get accepted in favor of higher prices and risker underwriting, is through trust and confidence. We continually make sure key players in our markets know and understand our strategy. They don’t have to agree with our offer price, but they understand and respect our approach. These properties might have headwinds, but the reward is a lower cost basis than we’ve seen in five years.

And let’s be clear while we are on strategy – there is no better way to de-risk a deal and increase chances of profitability than buying at a low cost basis.

Portfolio

Since our last update, being a known entity in Jacksonville has create opportunity for truly off-market deals. Accordingly, we are hanging close to the rim on several opportunities that we really like. We are committed to being patient and confident in the price we’ve offered, no matter how much lower than sellers expectations. We’ve seen it before and we will see it again, buyers fall out of contract leaving sellers willing to accept a lower price.

That is exactly how we acquired The Haven at Parkside earlier this year. Two parties made an attempt to buy this well located sixty-four unit property in 2023 and both failed. That put an owner in a bad mood, but also accepting of a new price that wasn’t on the table for the first set of buyers.

We are one hundred days into our hold and are very excited about our progress. We’ve maintained above 90% occupancy, even as we installed new rent collection policies and proactively evicted some challenging renters. We’ve renovated six units and signed new leases at a 25% increase from the prior owner. The biggest win: our team has renewed forty percent of the building, locking in an average of 15% revenue increase, including a new utility bill-back and amenity fee.

Our early success with this project has us committed to make JAX2 a reality. However, this focus on Jacksonville does not diminish our faith in the fundamentals of Des Moines. All of our assets there are at or above our forecasted numbers and the transaction market is decidedly more in favor of the seller than it is in most primary markets.

We hope to soon be updating you on our next acquisition. It’s been five months since we’ve had an accepted LOI, our longest stretch since starting this business. It’s about time for one of these sellers to accept our solutions. As the Black Eyed Pees say in the hit song…”I got a feeling.”

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Thanks for reading and hope you received insight and value. At Measured Capital, we are committed to always putting ourselves in the place of highest potential – which for us, means connecting with like-minded investors. I hope the time you spend reading this brought you to a place of higher potential.

Please forward this note to any trusted friend you feel could benefit as well. We welcome your feedback and are grateful for your trust.

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