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Commercial Real Estate FAQ With The Beach Company On Multifamily Investments And CRE Investing

How Do You Respond To Investors That Are Concerned That There Might Be Too Much Competition Within The Multi Family Investment Space?

The following Q&A was completed as part of our conversational Commercial Real Estate FAQ Interview Series, we hope you find it helpful.

Competition in the real estate investment world isn’t something to shy away from, but something to embrace. With so many players out there buying and selling real estate, there is no one major player to “look out” for, just other investors competing with one another for better pricing and more profitable properties. This allows all investors to enjoy better pricing and a better market overall when it comes time to sell. 

Richard Wilson: How do you respond to investors that are concerned that there might be too much competition within the multi family investment space? 

Leonard Way: Competition is good. Competition brings transparency to pricing in the market and everything else. It’s well worth remembering that the real estate market in our country, quite frankly across the world, is an extremely bifurcated marketplace. There are no major players. We may think of some major players but think in the multi family world – a major player still may only be 4 or 5% of the entire marketplace. There are millions and millions of rental units. The largest player in the country is Greystar, and they have maybe 700,000 units under their management, not even full ownership. So it’s an extremely bifurcated world and that’s fine, that’s great. That means you’re going to have a lot of competitors. In our marketplace in the southeast it’s very robust and it’s projected to stay that way and we expect to have a good number of competitors in our world. The real question that an investor should be asking is not are there too many competitors, but what is the makeup of those competitors? Are they well-seasoned? Are they institutionalized? Or are they two guys who had an idea and are trying to be a syndicate? What are their capabilities, what are their abilities to underwrite and capitalize the asset? Are their projected returns in line with the norm? You hear a lot of people now saying “I’m going to get you a 20% IRR in 3 years.” I’m sorry, that’s not the norm anymore. You might have been able to do that in 2012 and 13, but that’s not a normal situation. So ask your sponsor, ask your group there you know, you’ve got to be inquisitive about why you’re going into real estate and what you know about it and how you’re going to handle that property once you do acquire it. 

Leonard: My question, it just falls in with this Richard, the best question for an investor is, or thought process, I want a crowded field when it’s time for me to sell. You know? You’re going to get the best price in that situation. 

Richard: Right, right. And not overpromising to investors is part of protecting your reputation, back to what you said before, right? I mean that’s – If you’re seeing other competitors that are promising the world, you know, it might be hard for them to deliver more than the world versus promising something that’s realistic or even slightly conservative, and doing business with them based on other reasons that are more qualitative perhaps, right? 

Leonard: Correct. 

Richard: Great. 

About the author

Richard Wilson