How to research asking rents on Craigslist

If you’re going to do multifamily projects, you need to know your target post-rehab rents.

In our business, we rely heavily on proprietary information from our existing portfolio. Since almost all our units are renovated to a similar standard and all our buildings are clustered in a few areas, we have very granular information about demand.

But what if you don’t have that advantage? (Or, what if, like me, you want to avoid leaving any stones unturned in your quest for information?)

You need to spend a ton of time on Craigslist looking at asking prices for units of various sizes, finish levels, available parking, etc.

And, if you’re going to do this, it’s important to keep in mind the time of the month.

If you do your research in the first few days of the month, you are likely going to see units that carried over from the month before. And that’s bad, because those are the units that didn’t move… which in LA is code for “over-priced” (since everything moves in LA at the right price).

When’s the right time to check CL for pricing? Twice per month:

  1. In the days leading up to the third weekend of the month, prime time for leasing, when you should see the most product; and
  2. In the last week of the month, when owners will sometimes start to cut prices in hopes of getting someone in for the 1st… giving you a sense for which units were over-priced to begin with

If you do this religiously for your target markets for 2-3 months, you will know the pricing well enough to start to underwrite deals.

3100 London is in lease-up

We’re just beginning leasing on 3100 London, the largest project ever undertaken by Adaptive.

This one was a bear. Among other things, we upped the unit count from 24 to 27, totally reconfigured all the units, re-vamped most of the entrances, constructed private outdoor spaces for all the units and resolved a majorly painful situation with vagrants. When we started this project, Adaptive was, I think, 3-4 people and managed like 50 units. Now we’re at nine people and manage 400.

The good news is that units are amazing: Silver Lake location, parking, private outdoor space, single-story (so, no one above you), sliding glass doors, brand-new everything.

Here are some pics:

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They’re all one bedrooms priced between $1850 and $2100. They’re moving very fast and I think this will become one of the coolest communities to live in in Silver Lake.

If you are interested in being part of it, email Ilana [at] adaptiverealty [dot] com.

How to think about assemblage

When you’re in a hot market, every second thing you get from brokers is a development opportunity. That’s generally code for “over-price land”.

And I’ll tell you what your first impulse is: To see if you can maybe buy the land on either side and have that make the project work. (That’s called “assemblage”.)

But this won’t, and here’s why:

Buying land when it’s not for sale is almost never cheap. Sure, every once in a blue moon, you run into someone who really doesn’t know what their property is worth. But, mostly, you find yourself having to make a godfather offer to turn a holder into a seller.

And, if you start out with an overpriced piece of land (the one advertised as the “development opportunity”) and you combine it with the one you got by making a godfather offer, the chances are that what you have is an over-priced assemblage that still doesn’t work.

You know what works? Starting with a good deal.

Then, you can go add decent or even over-priced pieces around it and the good one brings your average cost across the whole thing down to a reasonable number. So, you end up with a bigger over-all deal where the numbers still work.

The kind of risk we take

Was talking with an investor earlier this week about possibly financing our next ground-up deal.

He considered our proposed deal structure and said, basically, “You guys aren’t taking any risk”. Which is sort of true, because we proposed to not put our own money in the deal. Instead, we were offering to backstop losses, partially fund overages, etc.

But, at a deeper level, his observation is not really true, because we are risking something that’s considerably more limited than investor money: Our time.

Compare our situation to an investor sitting on cash: He’s got an almost infinite array of investment options, both within the real estate space and across the broader investment landscape (stocks, bonds, etc.). He can easily parcel his money up among different opportunities to get at his own particular mix of risk / reward.

That is not us. When we take on a project, it means we can’t do some other project. And, because of how these deals are structured (with the investor getting his money back AND a good return before we participate in the profits), we need to be damn sure that we’re using our limited bandwidth on projects that are going to pay out sufficiently well to get the investor what he needs AND get us what we want.

Also, and perhaps more important, we are risking our good name. We are in the process of building a track record which we ultimately hope will attract investment in the hundreds of millions of dollars. You only get to raise that money by executing, over and over and over again, on smaller projects.

So, while our proposal didn’t include any of our own capital, we’re definitely taking risk. More, in some ways, than someone who trusts us with a small piece of their capital.