The method to buy below replacement cost is a tried-and-true investment strategy among real estate investors that allows them to capitalize on short-term fluctuations in the market in order to lock in long-term value. Grant Russell, director of investments at AvalonBay Communities Inc., said that multifamily investors today are in a “golden window” because they can acquire a Class A property for less than what it costs to develop the same community from the ground-up, all things being held equal. “Deals are trading for higher than yesterday’s costs and below today’s costs; these are win-win transactions,” added Russell. “If a developer capitalized the deal a few years ago then they’re selling for a profit, and the buyer is able to acquire these deals for below today’s costs.” These win-win deals are becoming few and far between in today’s environment of elevated interest rates. While buyers are seeking strong yields in their investments, sellers are seeking profitability, and the middle ground has become narrower as those two motivations don’t overlap as often, especially compared to 24 to 36 months ago when interest rates were at historic lows. “In 2021-2022, properties were trading like commodities to some extent — they were two-year …
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