Behringer Harvard Exec Says Multifamily Investors Will Seek Out "Higher-Quality" Assets in 2010

Behringer Harvard, a sponsor of investment programs that include non-traded REITs, maintains real estate funds specializing in a number of sectors and investment styles. This year, the company has been the largest investor in multifamily commercial real estate properties in the United States. caught up with Jason Mattox, the company's chief administrative officer, to discuss the current state of the multifamily sector. Why is this a good time to be acquiring new assets in the multifamily sector?
Jason Mattox: The dislocation in the capital markets and some of the upheaval that has impacted commercial real estate in a broad sense has created some real opportunities for investors. We've acquired some well-located assets with great amenities packages, and they have been available at significant discounts to replacement costs.
Those kinds of opportunities are unique, and they're certainly worth taking advantage of today. How do you see the multifamily market shaping up in 2010?
Mattox: From an investment sales or acquisition standpoint, I think we will continue to uncover these sorts of opportunities next year as well. Companies in the multifamily sector are fortunate in that debt is still available for high-quality property acquisitions via Freddie Mac and Fannie Mae.
The interesting question is, will some of the larger institutional buyers of multifamily properties re-emerge in 2010? We'll have to see if some of these institutions decide that some of the prevalent commercial real estate market forecasts hold water. What do you think will be the dominant theme in the multifamily sector next year?
Mattox: Buyers will continue to gravitate toward higher-quality properties. Those are more likely to trade in this environment. Also, the trades that occur will be based more on the sellers' individual situations than just trends in investment sales. Are there any particular regions of the United States that you think could offer outsized returns?
Mattox: Well, historically, coastal markets have provided some of the more attractive returns in the multifamily sector. In my opinion, that probably will continue.
However, opportunities in this market are more focused on individual owners and their own particular sets of challenges. In that sense, I think there may be opportunities for attractive returns across all markets. Do you expect Behringer Harvard to be a net acquirer in 2010?
Mattox: We don't actually forecast any sort of acquisition or disposition volume. There will be plenty of opportunities, though. I'd think we would want to take advantage of those. What would you consider to be the greatest lesson that companies operating in the multifamily sector can take away from the market upheaval witnessed during the past 18 months?
Mattox: Companies should pay very close attention to their balance sheet and their strategies for utilizing leverage. From a merchant-builder perspective, the amount of actual cash that one needs to have earlier on in a deal to take a responsible position will change.
Also, this market change has put a variety of the typical characteristics of portfolios into question. No one should take for granted some of the norms in the market that we have seen in the past.