Assessing Valuation Tools

When it comes to the valuation of multifamily assets, what once required days of phone calls, and in some cases a number of meetings, now takes mere minutes to accomplish--and yields more accurate results.

By Jeffrey Steele, Contributing Editor

When it comes to the valuation of multifamily assets, what once required days of phone calls, and in some cases a number of meetings, now takes mere minutes to accomplish—and yields more accurate results. Such is the impact of the technology tools that have come to the industry in the last few years.

“I’ve been buying multifamily for more than 25 years now,” says Gregory Lyden, executive vice president for New York-based Abacus Capital Group LLC, a multifamily industry advisor that buys properties on behalf of institutional investors. “Our ability to access vast quantities of information about properties, submarkets and markets has enabled us to become much more informed.”

On the property management side, Ken Polsinelli, chief real estate officer for Ann Arbor, Mich.-based McKinley Inc., is another observer appreciative of what technology brings to the table when valuing multifamily properties.

“I think technology gains have improved the accuracy and consistency of the information, as well as the timeliness with which these valuation assessments can be made,” says Polsinelli, whose 43-year-old firm is a real estate investment and property management company that owns and operates 33,000 apartment units across 20 states east of the Mississippi River.

“The information is more transparent, more readily available and far easier to aggregate. The result is more expeditious purchases of multifamily assets,” he adds.

From a market analysis perspective, information is more readily available about rents and competitive sales, both of which lead to more accurate understanding of in-place economics, Polsinelli says.

Whether it’s public data available online, or subscription services to proprietary databases, the information can be obtained quickly and without jumping through hoops. “In the past, there were gatekeepers to that information, and it may have been difficult to access the information based on whether your relationship with the gatekeeper was good,” Polsinelli adds. “But now all the information is fully transparent.”

An example of this transparency, he says, is seen in the area of comparable sales. This information was always publicly recorded but wasn’t nearly as expeditiously accessible as it is today from municipalities’ websites.

Tech gains have also led to more sophisticated modeling of valuations, Polsinelli reports. These days, there exist myriad ways to connect market activity with financials “and model that, based on investment criteria and assumptions, again allowing [for] more timely decision making on investments,” he says.

“For instance, you’re able to combine block-level census data with specific asset performance and with market data, pulling it all together and making a market analysis decision and an investment decision.”

Competitive rent analyses

For his part, Lyden reports that the most important advantage technology provides Abacus Capital Group is the opportunity to evaluate rents relative to the competitive set. “That’s half the battle when valuing a property—the income side,” he says. “And on the expense side, we rely on historical financial information. We can pull up tax bills in a market. The ability to research that quickly and see where real estate taxes have been in a submarket helps us.

“If we see taxes have been going up 3 percent or 4 percent a year, that’s something we’ll take into consideration in valuing the property,” he adds.

Much of this information is available through county websites, though in some jurisdictions it is accessible at the local level, according to Lyden.
“We let our fingers do the walking,” he adds, noting that Abacus Capital Group can today gather in a half hour the kind of information that 15 years ago would have required the firm to spend a couple of days of phoning to acquire.

Sellers’ benefit

Today’s tech tools are no less helpful to multifamily industry firms selling properties, says Michelle Sinclair, president of Trillium Residential in Tempe, Ariz.

Trillium is an ownership and management company with 2,000 apartments. If a prospective buyer needs to analyze the value of one of Trillium’s properties, Sinclair can quickly respond to queries about individual leases, and what kinds of concessions were made on those leases.

That’s because all the company’s contracts are electronically signed and scanned into a shared drive. “It’s not just that I can view those leases, but also that I can send that information to an interested buyer,” Sinclair says.

Some of Trillium’s properties are HUD-financed properties, which would ordinarily mean a semi-regular visit from HUD auditors, Sinclair says.  Rather than the auditors traveling to the property, “we can make it easier for them by putting needed information on a thumb drive and overnighting it to them.”

In recent Trillium sales, buyers have visited to conduct due diligence and sift, file by file, through the company’s leases to make sure all details of every lease matched details sent them by Trillium in electronic reports.

“Before a property even goes up for sale, on a monthly basis, our internal auditors are auditing to ensure the accuracy of information entered in our accounting system matches what’s on the lease,” Trillium’s Sinclair explains. “That’s led to feedback from buyers that our understanding of a property’s value is accurate.”

As helpful as today’s valuation tools are, they don’t replace human input. “There’s something to be said about not getting too comfortable behind your desk and the value of getting out and listening to the residents,” Sinclair says.

Adds Polsinelli of McKinley: “Technology is going to continue to allow us to make faster, more informed decisions. But getting to the right decision will still depend on the experience of the real estate professional.”

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