The turmoil of the last two years has brought apartment values down 30-40% in the Bay Area. With conservative leverage, cash-on-cash yields of 6-10% are now obtainable. We believe that the bulk of the drop in value has already occurred and the shift in social trends outlined below will allow for stable and improving cash flow for the next 1-3 years and substantial appreciation in 4-9 years. Spinnaker Investment Group has positioned itself to be in the right place to capitalize on this re-pricing of the market, and because of this our investors will profit.

The time is right for multi-family for three major reasons:

•  There are strong projections for increased demand/increased cash flow.

•  It is a perfect vehicle for wealth preservation and inflation protection.

•  The bulk of price depreciation has already occurred.

 

A Perfect Storm - A massive wave of echo boomers are entering prime renting age, the prospect of skyrocketing transportation costs are pushing people out of the suburbs, the credit crisis and collapse of the economy is creating a new normal where frugality and thrift are fashionable. Apartment buildings are perfectly positioned to benefit from these changes.

The echo boomer generation is even larger than the baby boomer generation. In the next ten years we expect the demand for rentals to surge as 2.0–3.4 million echo boomers move into the prime age group that accounts for almost 50% of all renters. Having seen the mistakes made by proceeding generations, this group will be more inclined to rent rather than buy.

Hummers, McMansions and Quad Venti Almond Soy Lattes from Starbucks are things of the past. The sudden collapse of the economy has caught the American population by surprise. In a knee-jerk reaction, consumers are cutting costs and deleveraging themselves. Housing and transportation account for more than 60% of most Americans’ incomes. Apartment buildings in metro areas represent a perfect solution to reduce commute times and decrease the percentage of income spent on housing. We expect this trend to temper potential losses that may be created by increasing unemployment in the short term and ultimately further boost appreciation once jobs become available again.