Multifamily Brokers: Is there a correlation between unit size and deal opportunity?
I am a broker that is interested in learning more about the multifamily segment. The last few years, I have primarily worked on shopping centers, but I am intrigued by multifamily. There is a partner in our office that has asked to mentor me in this transition, but I wanted general feedback. To break into this segment of the market, how do you all compare a focus on 60 unit/below opportunities Vs. larger unit (100+) opportunities? I would focus on Class B/C in either size. Does either size tend to generate greater market demand? How do the barriers to entry differ from each category?   Any multifamily brokerage insight at all would be appreciated as well! Thanks.
[{"id": "fxc1v17", "text": "It really depends on your specific market. I\u2019ve financed quite a bit of multifamily loans and haven\u2019t seen a difference between 60 units versus 100 units. A property with 60 units will generally require the same added features of a 100-unit property. Again, this is purely based on my experience.", "replies": [{"id": "fxc2e7h", "text": "Thank you! That makes sense, it seems market size matters the most. I am located in Houston, and my mentor had advised choosing between 60 units and smaller in the Houston metro as one option. The second option would be smaller markets (College Station, El Paso, Temple, Waco, etc) on 100-250+ unit deals.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fxc3do6", "text": "Ahh, I see. Houston MF properties with less than 60 units fall under the \u201cboutique\u201d category where you still have to provide a few bells and whistles to maintain a B/C class type, but nothing like a 100+ unit property. It really depends on the area of Houston. Some of the areas more centrally located will have smaller MF properties that fall into that B/C category.", "replies": [], "depth": 1}, {"id": "fxc45ib", "text": "I specialise in land and MF. Buildings with fewer units tend to have individuals, families, or small companies as their market, both on buying and selling sides. Larger buildings are generally institutional and REIT-owned, and a lot of times they just skip brokers and talk directly among themselves. Best chance to break into REIT/institutional-owned assets in MF is trying to make interstate/interprovince deals.  I would suggest you study the buildings, the players, and all the available transaction history in your market. Also, MF demands good CRE finance knowledge - there are tons of affordable online courses around.  \nI wish you luck!", "replies": [{"id": "fxc626r", "text": "Thank you for sharing! Online courses sound like a great idea. Take care!", "replies": [], "depth": 2}], "depth": 1}, {"id": "fxc5pnh", "text": "Larger units (100+) attract more institutional capital, which has its benefits in terms of operating efficiencies, access to debt, etc. \n\nI really think it\u2019s two different playing fields.", "replies": [{"id": "fxc68da", "text": "Thank you! It does seem like two vastly different opportunities. Do you think by starting on smaller units, there is potential to transition to larger? Or is it best to jump in to larger units and accept there is a big learning curve?", "replies": [{"id": "fxc6y4q", "text": "Im not a broker but if I was, i would start in the smaller unit space to build up a network of smaller operators. Those operators grow with you through your career and eventually JV with large equity groups to buy bigger unit sizes.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fxcjii0", "text": "Most of these responses are accurate re: institutional owners and larger prop managers being the primary difference as you increase in your unit count. \n\nThe more noticeable variance in asset class will be &lt; ~30 units where on-site leasing/management is not typical and operations are generally more lean with limited payroll outside of contract maintenance. Generally will be easier to get into most markets on these smaller deals shaking some trees to find the mom/pop ownership vs. the major institutional players.", "replies": [], "depth": 1}, {"id": "fxcxxca", "text": "I CNN", "replies": [], "depth": 1}, {"id": "fxd11mo", "text": "Larger units attract institutional money and have an easier time scaling maintenance and management costs.\n\nSome smaller players stick to lower unit count to avoid having to deal with affordable housing regulations. I believe this is county dependent. \n\nB and C-class are very different animals IMO. C-class you run across a lot more rent default. This is something that you'll need to find a solution for (e.g. Focus on Section 8, find a value add in a gentrifying area). One bad tenant (e.g. drug dealer) can be bad news for the entire building.", "replies": [], "depth": 1}, {"id": "fxfd0dk", "text": "One thought for you, not specifically about asset class/building size - for the \"smaller scale\" buildings out there (let's say &lt; 50 units, but varies by market) there is a distinct lack of buy-side representation in many markets\n\nTo expand on what /u/Lutheranglican indicates, the primary market in these properties is individual owners, small family offices, non-institutional investors, so these deals go via brokers/agents as opposed to private discussions between REIT's/Insurance Cos.  Further to that, these \"smaller buyers\" often aren't on the ground in a given market as they start to expand and purchase additional properties.\n\nSpeaking as an investor in this space, as we look to move into markets that we're not \"local\" to, there is a big lack of buyer representation.  Our current holdings were all made in places we lived at the time (NYC prior, and now North Carolina).  As we look to buy additional buildings, we're looking into other markets for a variety of reasons.  That said, representation is hard to find.  I'm not wild about dual-agency (which is de rigeur in some markets like Chicago), and while we have a level of sophistication to underwrite our own deals I'd always like \"Feet on the street\" representation to walk me through a new city, validate assumptions, and so on.  One of the markets we're looking at, Kansas City, has a few brokers who solely represent buy-side for out of state investors - they don't list properties/represent sellers.  It's an interesting niche, and one I could get behind in other markets.\n\nIn this space, having knowledge of, and connections to, things like local lenders, property management firms, construction/rehab firms, etc. is invaluable to support \"remote\" buyers into new markets.", "replies": [{"id": "fxfdylz", "text": "Great addition! Thanks!", "replies": [], "depth": 2}, {"id": "fxgb8oq", "text": "Excellent insight! Thank you for sharing. It is interesting to hear about a market need for buy-side representation in that size range. \n\nIn the past, I have been primarily focused on the \"seller-side\" mainly since obtaining an exclusive listing had a better chance of closing business. Do you ever hire exclusive buy-side representation? Or is that not common? Thanks again for sharing.", "replies": [], "depth": 2}], "depth": 1}]