We're off to the races on a new year and already have a lot of "stuff" to unpack. But rather than rehash what's happened, I want to talk about the opportunities this year. We unpacked this a bit in our 2025 Outlook Report, which you can download from our website. However, in this analysis I want to give you some thoughts on what we think is the unique opportunity for investment in multifamily in our markets.
Vintage (i.e. 1900 - 1940s assets)!
Yeah - I know - that's the polar opposite of whatever everybody's doing right now.
But that is why it's an opportunity. Consider a couple of points:
Vintage Assets (often) occupy prime real estate because they were primarily built in the early days of a city's growth. So it occupies what most would consider "primo" real estate.
It's built differently (better) - they don't build stuff like they used to. Believe it or not, this "mostly" applies to vintage buildings. Some simple examples - the wood that was used in the construction of vintage assets is from old-growth forests and only heartwood. Compare that to the cheap particle board we use in today's construction. So - it's old - but it's built to last.
It has way finer attention to detail - this sort of dovetails into a broader point on the cultural and aesthetic appeal of these assets, but they didn't used to "mass produce" stuff like they do today. Most vintage properties have an incredible level of detail that doesn't exist in modern construction. Certainly, when compared to your standard suburban garden apartments it's a night and day difference. Take a look at the below - this is a building we own - and notice the incredible details around the doors.
It has unique cultural appeal - a lot of residents in these cities prefer buildings that have some charm and character to them. They usually have a strong pipeline of people that want to live in them, and actually prefer them.
So those are some valid reasons, for sure, to think Vintage Real Estate is the next opportunity. There's some more financial focused arguments here, as well, though, that will make this even more evident.
First of all - the asset class is not without its challenges. The two biggest issues with Vintage are: a) insurance and b) systems.
Often, with insurance, there is coverage available for the buildings. But it's more expensive - go figure. But that is the opportunity. Personally, I think the insurance industry is going through a "difficult time" right now, but my personal conjecture is that they ultimately come back into these markets when premiums get too rich. And in the meantime, that is an advantage for the BUYER since it allows you to demand better pricing.
The systems are the second biggest issue. And these, too, can be an opportunity. You see, once you improve the systems the building is still really solid, and still occupies tremendous real estate. And because insurance is creating so many problems for people, it logically fits that you must make X and Y systems improvements, which likely results in further price decreases.
Lastly - not to be controversial but why not - people are band wagoners. I have yet to meet an investor who is NOT desperately hunting for that 2000 + vintage building to buy. They're all herding into one end of the market. Tough to find a deal, in my opinion, when everybody in the world is looking for the same deal.
By contrast - the bottom end of the market (early 1900s) is scarcely populated, There are very few people buying there. Prices reflect it, too.
By the way, in the last year we bought vintage properties for $140,000 a door, $166,000 a door (in Seattle!), and $98,000 a door (in Portland). Those were all 7+% capitalization rate deals.
We're in contract on a really interesting deal in Seattle right now that fits all these parameters, and will generate substantial cash yield out the gate to investors as we hold, improve the asset, and enjoy the windfall until we can sell it to the next "value-add" investor again.
There are going to be many opportunities in real estate over the coming years. I think this is one of them.