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Why buy portfolios?

Being the head of product at redIQ means a few things. It means leading a team that wants to deliver the best possible underwriting solution and iterating quickly. It also means constant conversation with our clients—and other players in the industry—about what they need from our team, about their existing processes, and about their outlook on the multifamily market and on real estate generally.

My conversations with others in the industry have made it clear that 2018 was a mixed bag. Delivery of new multifamily housing stock slowed in the first half of the year—down a full 11% over 2017. For buyers searching for existing assets, supply also remains tight, while demand from consumers for rental units remains high. These circumstances have conspired to create a perfect storm for acquisitions teams: if you are interested in lease-up deals, they are few and far between, and if your team has a value-add approach, supply in most markets remains low. This means if you can find a deal or deals that work, you’re in luck.
As we approach the end of this cycle with the market tight, my conversations suggest that it’s become difficult for owners to deploy capital while making the best decisions. What are some ways of doing so? There’s the tried and true method of hunting the best individual deals, one-off assets, as offering memorandums come in from brokers or JV partners. Alternatively, owners can pump money back into existing properties to command higher rents and better establish themselves in markets where they already have a presence.

If those two solutions prove inadequate for meeting investment targets and don’t allow for the disposal of enough capital, there is another that clients have been mentioning more as of late. That solution is acquiring multi-asset portfolios. Acquiring multiple complexes in a single deal can take away the headache of searching piecemeal for assets, and instead guarantee adding several properties across either one or several markets to a company’s existing assets.

If your team is worried about an upcoming downturn, and want to diversify with a foray into a new market, a portfolio deal with assets spread across a desirable mix of growing cities like Fort Worth or Denver can offer a bulwark against volatility elsewhere. Portfolios have the added bonus of creating a solid base in whatever markets you’re targeting. Gaining several assets in different markets all at once creates instant familiarity with local quirks, and generates valuable data. This information can allow owners to decisively learn how best to succeed within a given submarket. Going forward, this knowledge makes it easier to find future acquisitions that fit with the existing portfolio and local expectations.

A drawback of portfolio deals is the volume of work and analysis that goes into assessing the relevant markets and the assets included in the deal. To properly take account of the upside and risk associated with such a large transaction, valuable time must be expended. Reassigning analysts and devoting additional resources can help, but that is not a long-term solution. However, technology can offer help to teams that want to tackle larger projects, with benefits that extend to any underwriting.
redIQ grants investors, brokers, and lenders on teams of all sizes the ability to screen more deals more efficiently than ever before. Everyone with access to the platform gains ready insights into the merit and value of each deal that comes across their desk, whether it’s part of a portfolio or a one-off deal. Analysts can effortlessly pinpoint discrepancies in property data, and team leads can monitor and track their work, all while creating a dynamic database of every asset you’ve underwritten.


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