Does Location Really Matter?

In yesterday’s Wall Street Journal there was an article that talked about an investment fund called CORE investments, a fund that is buying very high quality properties, fully leased, in stable markets, at relatively low yields. I thought this was interesting because it shows that some pretty high IQ people have decided that it is better to be safe than sorry. For the past 20 years it seemed to me that every real estate fund out there was seeking extraordinary undervalued deals that they would add their expertise to and increase value significantly. Now the smart guys are seeking investments that they will do nothing to but hold as the preferred way to invest in real estate.

I recently witnessed what I want to call the Tale of Two Cities. The two cities are not that far apart, Burien and Fremont (I know Fremont is part of the City of Seattle but people who live in Fremont may disagree so I don’t want to offend anyone) but may as well be in different hemispheres as far as pricing today is concerned.

Within the past three weeks two separate sales of apartment buildings have closed at about the same price, one for $2,275,000 and the other for $2,250,000. The first is in Fremont: a 15 unit built about 20 years ago that sold for an 11.3 gross rent multiplier and a 5.09 CAP, $151,667 per unit. The other sale is in Burien for a building built about 40 years ago that sold for a 5.5 gross rent multiplier and a 7.57 CAP, $52,325 per unit.

Quite a stark difference that shows the premium price well located properties continue to obtain. This has been the case as long as I have been in the business of selling apartment buildings (over 24 years now).