Apartment Market: 86% Drop In Sales Nationwide

The Montecito Apartments, Hollywood

The epic boom and bust of this recession has roiled the multifamily industry, bringing the apartment market to a virtual standstill.

In the first quarter of '09, only $1.8 billion in apartment assets (totaling 152 properties) changed hands...That’s a drop of 86 percent from a year ago. Volume fell 61 percent from the fourth quarter of 2008 and offerings outpaced closings by five to one. “We’re basically at zero.”

Los Angeles, where apartment assets are still trading, bucked the trend.

Only Los Angeles (with more than $200 million in sales), Manhattan, Northern New Jersey, and Indianapolis … had more than $100 million in sales. Most properties that did sell in the first quarter were between $5 million and $10 million.

This huge drop in large apartment sales nationwide suggests sellers and buyers are eyeing different returns. Interestingly, cap rates for small properties are holding firm.

Cap rates for properties with a price tag of more than $30 million have risen 120 basis points, while they haven’t moved much for properties below that threshold.

As in the residential market, foreclosures on multifamily properties will likely contribute to a market bottom as buyers swoop in to buy up these distressed assets.

CMBS [commercial mortgage backed securities] delinquencies rose from 1.14 percent to 1.76 percent, or $10.7 billion, in the first quarter. A third of these loans were in multifamily. And once those distressed assets hit the market, multifamily vulture funds waiting to finally jump into the market will do so. And ultimately, that's what will finally push up transaction figures.

This research tracks large apartment complexes, typically the province of institutional investors (REITS, pension funds, insurance companies, etc.)

The financing and financial objectives of these large players are different from the small investor’s. Fannie Mae and Freddie Mac hold sway over small multifamily financing, and the government’s backing has supported this market. [Multifamily Executive]