Study Markets But sticking out a real estate cycle isn’t enough to be successful. It’s important that, before entering a market, a company does extensive due diligence. “You can’t go into a market blindly,” McDaniel says. “We make an internal decision based on the viability of a market coming back.”
To figure that out, the company looks for demographics that address a decline in construction or supply in available units, or an increase in demand for rental units.
However, the risk still exists that you will incorrectly evaluate the market. “We study an enormous amount of demographics and statistics,” says Ogier. To reduce that risk, “we hope to [combine] that information with our boldness and commitment to stay in the game.”
With a philosophy that recognizes and takes advantage of down markets, the current recession is not as bad for the multifamily industry as some would think, according to Ogier. The U.S. economy is on the road to recovery and the multifamily housing industry is healthier today than it’s ever been because of prudent lending, explains Ogier.
So, while some companies are concentrating on the fact that there is an oversupply, a reduction in apartment demand and an increase in job loss in some markets, Ogier would rather focus on the positive signs of recovery. For instance, nationally there is a 20 percent reduction in completions of apartments in 2002. In addition, ContraVest’s lenders are predicting a 50 percent reduction in construction loans in 2002. On top of that, the supply of apartments is being diminished and interest rates are at an all time low, which he sees as advantages to developers.
“I have tremendous faith in the American economy,” he says. “I believe there will be a positive cycle in 2003 and 2004. So, we’re positioning ourselves to participate in the up cycle.”
The risk involved in this type of real estate transaction isn’t for the weak at heart. “Pessimists don’t develop real estate. [Ogier] is obviously very optimistic, very upbeat and he’s got great instincts,” points out Douglas W. McNeill, president of Case Pomeroy Properties, which has joint venture deals with ContraVest.