Borrower view: Nelson Management believes the safest place today is on the sidelines

The New York-based multifamily investor has been looking selectively at deals, but believes rates are too high to move ahead with transactions. 

Nelson Management, a New York-based owner/operator, believes today’s volatile interest rate market means that the most secure place for an investor is on the sidelines.

The firm, which in June re-acquired a pair of local properties totaling about 1,200 units that it sold many years ago, has not moved forward with new acquisitions since that time, said Robert Nelson, president.

“Since we were able to secure financing on that property, interest rates are up significantly, which has made it hard for us to do anything,” Nelson said. “We are in an upheaval period now and the debt markets are upside down. There are also a lot of local lenders that are not interested in lending right now.”

The firm has been in business for 30 years, immersed in the multifamily world of New York City. Its portfolio includes a 17-unit property which was its first acquisition as well as much larger-scale properties. Nelson Management’s expertise includes the city’s arcane rent stabilization laws, HUD Section 8 buildings, market-rate buildings and the intricacies of navigating the city’s Mitchell-Llama affordable housing program.

“We are bread-and-butter operators, partnering sometimes with private equity funds, but we manage the properties and roll up our sleeves with the most granular aspects of the business. That helps to make up the larger piece of the equation,” Nelson said.

While the firm has selectively looked at a handful of opportunities, Nelson Management is planning to hold its fire until there is more clarity in the market.

“You’re seeing a lot of people on the sidelines because they don’t really understand where this risk is going,” Nelson said. “It’s created a marketplace where you don’t want to take that plunge. You will only see it break when rates start to move south or stabilize.”

Nelson, like many of his peers, does not believe rates will trend downward in a significant way any time soon. The Federal Reserve said it wants inflation capped at 2 percent and it will take time to get there, he added.

“Whoever is telling you that rates are going this way or that way – no one knows. If they did, you should send them to Belmont racetrack and let them go pick the horses for you,” Nelson said. “While no one knows what is going to happen there is a feeling it will take a lot of time.”

Sellers today are in a precarious situation which makes it difficult for them to act. To the extent that rates rise, the value of their properties are going down.

“Low interest rates benefit a seller, not a buyer,” Nelson added. “Low interest rates were around for years and now you have such high rates that usually what happens is that you may find a property you’re interested in but there is negative leverage. Also, you don’t have sellers who are willing to accept that their properties’ price and value has plummeted. I’d say right now, the market is completely dead.”

When the market does reboot, Nelson said the company will stick to its tried-and-true mantra about what makes a good asset: location, location, location.

“One of the things that is so important to me is getting a tour early in the process. If a property is being marketed for sale with deferred maintenance, you’ll see it in that walkthrough,” Nelson said. “On paper, it might seem like an interesting property but then you get there and realize it is not what you thought. Like my mother would say, ‘You get what you pay for.’”