THE HUMAN TOUCH Yet, for all the high-powered analysis software emerging in multifamily today, some firms still rely on tried-and-true, pen-and-paper methods, using hard-earned institutional instinct to play the market.
Take Denver-based REIT UDR, which didn’t employ any advanced modeling tools to close its $1.7 billion sale of 86 communities to New York City-based DRA Fund earlier this year. Matt Akin, UDR’s senior vice president of acquisition and disposition, says the firm compared its rents, which varied dramatically by market, to maintenance and operating costs, which were fairly uniform across its portfolio. “Obviously, if you’re maintaining roofs or replacing exterior finishes on properties that have a $600-per-unit rent versus a $1,200-per-unit rent, the impact on your cash flow is greater,” Akin says.
Now building UDR’s portfolio in high-barrier markets such as Washington, D.C., Akin says the deal was based on fundamentals, not modeling. “We just looked at rent per unit and operating margins, along with job growth and supply projections, in each market,” he says.
Still, as one of the premier apartment REITs in the country, UDR can afford to rely on its institutional instinct and aggregated professional knowledge. Other firms are only too happy to reach for a technological leg up. “It doesn’t matter how much experience you have, or how much you’ve done this before—you just can’t do this stuff in your head,” says Dan Bernstein, chief investment officer at Campus Apartments, a Philadelphia-based owner of 17,000 beds that has spent years developing a proprietary system to look at acquisition and disposition opportunities. “Using the model, and the technology that’s out there today, helps you visualize your investment.”
Joe Bousquin is a freelance writer living outside of Sacramento, Calif.
MODELING MUSTS Leverage these three areas to make the most of portfolio modeling.
- 1.Use what you know. While modeling technologies are advancing, human knowledge is irreplaceable. Before running the numbers, compare industry basics such as performance fundamentals against the general state of the multifamily market and wider economy.
- 2.Use what you have. After you identify a property, mine your internal operating numbers and apply them to the acquisition target. This identifies weak points and determines the return you should be able to achieve by applying your own management practices.
- 3.Use what you want. Set return targets for each property, and then determine when you will hit them. If it makes more sense to focus on individual assets in your portfolio, stagger your disposition timelines to maximize returns. Also, run scenarios through your models to see different outcomes.
