October 31, 2019
When it came to apartment sales, deal volume fell by 7% year over year, according to Real Capital Analytics’ U.S. Capital Trends apartment report. The reason for the decrease during Q3 2019 was because of the focus on single-entity transactions, even in light of Cortland’s $1.2 billion acquisition of Pure Multi-Family REIT.
Because single-asset sales were on the rise, RCA indicated its optimism for the apartment industry. “Single-asset sales are up, as recession fears are stoking further investor demand for investments in the apartment sector,” the report pointed out. Basically, with recession fears looming, investors are looking for properties in which capital expenses won’t be as challenged in a downturn. RCA, citing data from the National Council of Real Estate Investment Fiduciaries (NCREIF), said that the apartment sector has the lowest ration of capital expense costs, relative to other commercial sectors.
Meanwhile, sales prices increased 7.7% year over year during September 2019 according to RCA’s Commercial Property Price Indices. The increase is down from the 11.4% reported in September 2018, but is stronger than that of other property sectors. Furthermore, experts reported to the National Apartment Association (NAA) that, in the current low-return environment, investors are out for more yield, with value-add product meeting the need.
“It’s a very challenging environment to acquire any properties that have a value-add component—all the upside is already priced in,” 29th Street Capital’s Robb Bollhoffer told the NAA. As a result, 29SC changed its strategy, which is a focus on disposition, as opposed to acquisition. As the company sells its older assets, it is viewing more opportunity to develop core-plus properties. Bollhoffer indicated that 29SC opened a development business unit in Sacramento, CA “since this market is underserved on the supply slide, and our cost basis will still be below some of the older-vintage assets that are trading in the market,” he said.
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