Bill Stahlke isn’t quite the Brett Favre of multifamily housing. Sure, the president of investments for Lane Strategic Management came out of retirement to help Atlanta-based Lane Co. and its equity partner, Philadelphia-based Lubert-Adler Partners, deploy $250 million into distressed acquisitions. But Stahlke shies from the gunslinger strategy employed by Favre—and the record number of interceptions that have come with it.
According to Stahlke, multifamily acquirers just months removed from a market correction are already taking too many underwriting chances, betting on Hail Mary financial engineering to compete offensively in a compressed cap rate environment.
In fact, Stahlke has yet to lay down dollar one of Lane Co. and Lubert-Adler Partners’ fund since joining in July 2009, and he hasn’t regretted the conservative play calling.
“I exited real estate in 2004 when property valuations were overheated, and I stayed on the sidelines for five years,” says Stahlke, who retired from overseeing capital transactions and apartment acquisitions as president of both Windsor Capital Partners (now Atlanta-based Shoptaw Group) and Big Rock, Ill.-based Executive Capital Corp. “In the past few months, deal flow has been great versus 2009, but the problem that I see—and why we have not purchased anything—is that there is still a feeding frenzy amongst buyers.”
That frenzy has pushed valuations away from historical norms. While Stahlke recognizes the arbitrage play given interest-rate environments, he still questions the decision to go long. “Buyers either think that cap rates are near historic norms or there is going to be an obscene amount of rent growth,” Stahlke says.
Stahlke benefits from patient capital as he seeks deals at traditional cap rates (think 7-plus percent) in top markets, and he says discipline will win out over market enthusiasm.
“As some of this equity is deployed, the markets will cool down and cap rates will edge back up,” he says, adding that Lane is in the final round on two large deals in Atlanta and Kansas City, Mo. “When people ask me when, I’m thinking first half of 2011. So if you can keep your powder dry for the next six months, you’ll be in a great position to buy without using financial engineering to make your deals work.”
Maybe that’s not taking the West Coast offense approach to the marketplace, but Stahlke doesn’t mind—he’s a Matt Ryan fan, anyway.