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February 8, 2024

Clawback in multifamily Leaves questions about where market is positioned

As featured in “San Antonio Business Journal
Ramzi Abou Ghalioum, San Antonio Business Journal, 8 February 2024

Recently featured in the “San Antonio Business Journal,” Graham Sowden, Chief Investment Officer at RREAF Holdings, shares his insights on the current positioning of multifamily commercial real estate. See what our CIO has to say.

Graham Sowden, chief investment officer with RREAF Holdings, a Dallas investor and developer with properties in the Hill Country and along the Interstate 35 corridor between San Antonio and Austin, said the current market is inhospitable for poorly capitalized players.

“You have a lot of inexperienced owner-operators or groups that just came into the space within the last 24-36 months, taking on riskier, high-leverage floating rate loans,” Sowden said.

That’s because even well-tenanted properties can drown under the cost of their floating rate loans, which rise commensurate with interest rates.

“A lot of what’s happening is that debt service increases to such a point that almost 100% of your free cash flow at the property is going to service the debt, versus going back into the property to renovate and market units and lease up the property,” Sowden said.

Despite tighter capital markets, Sowden said there are still opportunities to be had for well-capitalized players.

“It depends on when a property was bought and how owners capitalized their deals,” he said. “We probably have three deals out of more than 60 that have floating rate debt on them. The rest are 10-year fixed-rate money, so we’re well positioned to weather the storm. If we’ve implemented our value-add strategy at these properties, we can sell our deals as loan assumptions. There’s a big buyer pool for that because they’re able to assume good debt at a rate 100 or 150 basis points lower than what they could get today.”

Although the firm is still actively pursuing deals, Sowden admitted that RREAF made its fewest new acquisitions over the past 12 months, however.

“We spent a lot of time kind of looking inward and focusing on management and operations,” he said.


To read the full article visit “San Antonio Business Journal