By Bill Shippen
Apartment Realty Advisors, Atlanta
shippen@arausa.com

It has been a while since any of us have had any psychological training; therapy, perhaps, but not training. Giving consideration to the common behavior among investors within the market right now, I have been thinking a lot lately about the grief model put forth by Kubler-Ross in 1969, which depicts the process by which we get over loss and tragedy in our personal lives. Given the current, tragic state of the real estate market, it is not surprising to see the deterioration of most investors’ well-being; it makes sense to apply the grief model to owners and their recent acquisitions.

Nationally, Apartment Realty Advisors have been involved in numerous dispositions for lenders over the past year. Below is a typical example of the Stages of Real Estate Ownership Grief that we have experienced:

Denial
It has been 12 months since John Value-Add bought the 400-unit Las Rundownas Apartments. He feels optimistic that the 5% cap he paid will be justified since his $10,000/unit rehab is almost complete. He expects to be realizing the $200 rent increases he projected any minute now. He’s confident that all he needs to hit his projected profits is maybe a little more marketing or a change in staff.

Anger
Another six months have passed. Management has been changed. John is frustrated that he can’t get any qualified traffic. Existing tenants are fleeing the increased rates and NOI has dropped to a level lower than at the time of purchase. In a drastic move, concessions are increased to two months and leasing standards relaxed. That 2-year IO Period is just about up and he had better start cash flowing. John feels increasingly irritated about the property’s performance, wondering why the market is devastating his fail-proof pro forma.