Investors continue to prefer investment in U.S. apartment buildings over most commercial properties, even commercial office space; total multifamily sales volume jumped nearly 80% in 2011’s second quarter from a year ago. Although still just a fraction of its mid-2007 peak, the nearly $15 billion in sales in the second-quarter 2011 brought total investment for the first half of the year to $24.5 billion, according to CoStar Group data.
The average per-unit price of apartment properties reached $88,500 in the quarter, the highest since third-quarter 2008, according to CoStar Global Strategist Michael Cohen during CoStar’s Mid-Year 2011 Multifamily Review & Forecast. Meanwhile, strong renter demand continues to push down apartment vacancy rates and nudge up rents. With capitalization rates for existing properties seeing strong compression in some high-flying markets, larger multifamily developers have responded by starting to ramp up their development pipelines with new projects.
Average apartment capitalization rates continued to fall in the second quarter to slightly below 7%, while weighed-average cap rates, driven by the large high-priced transactions in prime markets, declined to 5.7%. However, cap rates for mid-size value-add and opportunity deals are also declining. Cap rates on smaller transactions remain in a holding pattern.
“The operating improvements in the multifamily sector are helping this asset class to clear existing debt when the properties approach loan maturities,” said Gary Unkel, a Senior Loan Originator at ValueXpress. “We have a number of multifamily projects under application for different programs, depending on the situation. Newer properties located in markets where Fannie Mae and Freddie Mac are active are finding the best terms from these agencies. Other markets and/or Class B apartment complexes are finding CMBS conduit execution is the way to go,” said Unkel.