February 2025 Market Data
Only one property traded in the month of February. 2014 Fern Street Honolulu, HI. 96826, a 9-unit property that was acquired in November 2023 for $2.3M and underwent a value-add program and listed back on the market in September 2024 for $3.15M. The property traded at the end of February 2025 for $2.7M or $300K/ unit and a 6.25% CAP rate.
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Inventory Snapshot
On the supply side of the market, there are a total of 56 multifamily properties (5+ units) listed for a total consideration of $213M. 13 of these properties are currently under contract accounting for $54.8M of potential volume or 25.6% of the market supply. The average days on market is just shy of 6 months at 173 days. The median CAP rate of deals currently on the market is up slightly from January to 3.87% indicating that Seller’s are still pricing their properties aggressively and will be patient in finding the right buyer.
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Asset Management Tip – Don’t Leave it to the Kids
Many of the multifamily owners that we consult with are planning to leave their properties to their next generation, an honorable gift of wealth and stability for their children. While this transition seems to be the most common, it may not be the best for the family and wealth creation for the generations to come. Let’s explore the challenges involved with leaving the property to the kids and the benefits of alternative strategies.
Challenges of Inheriting Multifamily Properties
- Lack of Experience: Heirs may not possess the necessary skills, time, energy, or desire to manage apartment buildings.
- Operational Hurdles: Handling vacancies requires marketing, leasing, and renovations.
- Deferred Maintenance: Are family members willing to contribute additional capital to conduct large capital improvements?
- Decision Making: Are all heirs on board when making decisions? Often times the number of owners grows from just a pair of owners to now 8-10 individuals and several family interests which makes decisions challenging and can lead to family disputes.
Strategic Alternatives for Property Owners
- 1031 Tax-Deferred Exchange: Transition into more passive investments like Single Tenant Net Lease properties or Delaware Statutory Trusts (DSTs).
- Benefits include – Simplified management, potential cash flow increase, and tax advantages.
Advantages of Proactive Estate Planning
- Tax Efficiency: Heirs can sell inherited NNN or DSTs at a stepped-up basis, potentially avoiding capital gains and depreciation recapture tax.
- Wealth Preservation: Proper planning can preserve 30-40% of the property’s value depending on tax rates.
- Peace of Mind: Endures smoother transition for heirs, reducing the burden of complex property management and potential family disputes.
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Multifamily in the News
Aging Affordable Housing Project Gets New Life in Chinatown
Kuilei Place – Affordable Condo Project Breaks Ground
Affordable Housing Project Opens First Phase
City Initiates Further Property Acquisitions
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708F Olokele Ave.
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