Thompson Expects Lower Apartment Prices Next Year
By Keat Foong, Executive Editor
September 29, 2009 – New York—Many multifamily investors are sitting on the sidelines, at least in certain markets, as they expect prices to drop further.
In an interview with MHN, Tony Thompson, CEO of Thompson National Properties, observes that investors are still not purchasing in Florida, as they think there will be even better deals in the future.
Thompson founded and ran TripleNet Properties before merging it into Grubb & Ellis. He started Thomson National Properties last year and has so far built a national ownership/asset management platform of 75 commercial real estate properties.
There are oversupplies of apartments in markets such as Southern California and Florida, says Thompson. In Florida, he noted, condominiums’ conversion to apartments have added to the apartment surplus. This is further compounded by a decrease in population in the state in the past 12 months.
As an investor, Thompson expects apartment prices to drop another 10 to 15 percent through next year. He says next year will be the capitulation year for commercial real estate as loans begin coming due, with even more maturing in 2010 and 2011. “That will be the final peg that drops prices to where we expect them to be,” he says.
Nevertheless, Thompson observes that banks are beginning to return to the market, and insurance companies are beginning to “sharpen their pencils.”
And Thompson is making investments—in strong apartment properties—for a 1031 exchange fund his company is sponsoring. The fund seeks B+ to A or A-minus properties. “We like to buy large, new hard-to-find deals that make sense,” he says.
The fund has just purchased an apartment property in Baton Rouge at 8 percent cap. The market has very low unemployment, and it is located close to a large university.
Transactional activity in the 1031 market has shrunk with the recession, Thompson notes. The $3 billion industry has plunged to $200 million this year. Multifamily has been about 30 percent of the volume. The reason that 1031 activity is down is that financing is still difficult to obtain, he says, even for multifamily, and sellers are not selling if they do not need to.
Thompson comments that not a lot of opportunities are available in multifamily. “If you want to go to Florida, you can take a higher risk, and you can find more multifamily in trouble,” he says. There are greater opportunities in retail and office which have fallen much further and do not face as much buyer competition, Thompson adds.
