PROFILE: BDO

By Keat Foong, Executive Editor

As consultant to real estate companies, Stuart Eisenberg may have a finger on the pulse of sentiments in the commercial property sector. And what he is sensing is that apartment investors may be starting to sit on the sidelines.

The global economic turmoil, the upcoming fiscal cliff, the fear of apartment overbuilding and the possibility of rising interest rates in future are all contributing to greater investor uncertainty, Eisenberg suggests. “To me, it does appear that investors are preferring to hold cash,” he says.

Eisenberg, who is partner and real estate industry practice leader at BDO USA LLP, says there are solid investment opportunities in multifamily housing today. All the same, he notes, for example, that investment sponsors are having greater difficulty creating real estate investment, including multifamily, funds today.

“We see, with several of our clients and groups trying to put together funds to get into the multifamily space, that raising equity is a challenge,” says Eisenberg. “Trying to raise $150 million, and even two-thirds of that amount, may be tough.” Many investors may also have issues with the low yields in the “compression markets.” At the same time, they are wary of taking on market risks, he suggests.

Concern is also emerging among investors about multifamily oversupply, not only as a result of foreclosed single-family homes being sold to investors who rent them out or otherwise converted to rentals, but also as a result of possible overbuilding—at least in markets with softer barriers to entry. However, any significant oversupply is not expected until 2014 or 2015, says Eisenberg. “Everyone is trying to take advantage of the [multifamily] space, so there is quick turnaround in the pipeline of projects in construction. So [there is fear that] the oversupply can happen quicker than thought possible. And 2014 is not that far away anymore.”

A 100-year-old company, BDO is an international accounting and consulting firm that provides assistance, tax and financial advisory services to both publicly traded and private companies. In the U.S., BDO has more than 40 offices and 400 independent alliance firm locations nationwide, according the the company’s website. As a part of BDO’s real estate practice, Eisenberg works with owners, developers and lenders in the market-rate—and affordable—multifamily industry.

Investors also worry about whether they can achieve the same or higher sales prices upon exiting their real estate investments in the future given the low interest-rate environment currently.

As a result of all the investment considerations, Eisenberg says, investors are considering cashing out today. Many clients are achieving their desired occupancy rates—of 95 to 100 percent—he says, and “the properties are cash flowing at a premium point. If [the investors] can obtain the highest prices now, they may want to harvest [the cash] because they may have reached the apex of pricing.”

And one consequence of investors wanting to hold cash or sell may be that the availability of capital may become “a bit more constrained” in the multifamily sector, Eisenberg acknowledges.