Do Value-Add Acquisitions Make Sense in the Current Environment?

Over the past several years, equity in the apartment industry has spent a lot of time and effort pursuing value-add acquisitions.
At first glance, it’s easy to see why. Generally speaking, value-add communities are older properties in need of renovations to remain competitive. As a result, their acquisition costs historically have been lower than those of core communities – properties that were built fairly recently, have strong operating fundamentals and are in great locations.
When you couple the lower acquisition costs of value-add communities with the ability to significantly increase rents through renovations, there is the potential for higher returns than you might find from core investments. 
But now, some owners and investors who have dabbled in the value-add arena – including JVM – have become more cautious when pursuing these opportunities. That’s largely because the prices of value-add properties have increased with all of those investment dollars chasing them, reducing the opportunity to get those desired returns.
Instead, many of these investors are embracing the attributes of core properties.
The Issues with Value-Add
The rising costs of value-add properties have definitely given some multifamily investors pause. When you combine these prices with the cost of renovations like granite countertops, stainless-steel appliances and vinyl-plank flooring, you can sometimes end up paying close to core price and getting a core-like return at the end of the day.
Value-add properties also can saddle owners with other unexpected expenses that don’t really impact a community’s ability to drive rents. Since these properties typically are older……