Creative Solutions to Complex Problems
Buyers & Lenders Return to the Market in 2010!
Dawn Dyer, President
While still well below pre-recession levels, the number of multi-family sales in Ventura County through August 2010 has increased significantly over last year, although values have softened slightly. This upswing in market activity is fueled, in part, by enhanced availability of financing for apartments. Current demographic and economic trends, which favor rental housing, have heightened the appeal of apartments as an asset class for lenders and savvy investors alike.
There were only 9 arms-length sales of 5+ unit apartment buildings reported countywide in 2009, while 13 transactions have already closed escrow through August 2010. If market activity continues at current levels, we could come close to the 2008 sales volume of 26 transactions, but will still be lagging the more robust activity levels seen throughout this decade, which averaged 36 sales per year.
The YTD 2010 median sales price/unit of $103,529.00, and the median price/square foot of $142.00, are both down 22% from 2009 levels. This softening of apartment values is also reflected in the median cap rate which jumped from 5.64% in 2009, to a current median of 6.18%. However, compositional factors play a role in the data. The handful of sales in 2009 were mostly small (7-8 unit) buildings in good locations, which sold at a premium; while the one large (106 unit) building that sold last year traded at a 6.5% cap rate. Cap rates so far this year range from 5.6% to 7%, depending on location, condition, and unit mix. The largest property that changed hands to date in 2010 was 56 units, with an average of 22 units per building sold.
As the economy shows modest signs of recovery, investment capital that has been parked on the sidelines is creeping back into the marketplace. While lenders, as well as buyers, are being much more cautious and strategic about investment decisions, apartments are well positioned to benefit from the realignment of values and priorities spreading across the country. Homeownership is no longer seen as the goal by many who are choosing the flexibility and affordability of renting. Growth in demand for apartments is also being fueled by young people venturing out of their parents’ nest, and by those who no longer have the down payment, qualifying income, or job security to purchase a home. The mortgage markets are responding to these trends with renewed interest in making multi-family loans at more reasonable terms than have been offered for the past two years, which should fuel additional sales volume in the coming months.
There were only 9 arms-length sales of 5+ unit apartment buildings reported countywide in 2009, while 13 transactions have already closed escrow through August 2010. If market activity continues at current levels, we could come close to the 2008 sales volume of 26 transactions, but will still be lagging the more robust activity levels seen throughout this decade, which averaged 36 sales per year.
The YTD 2010 median sales price/unit of $103,529.00, and the median price/square foot of $142.00, are both down 22% from 2009 levels. This softening of apartment values is also reflected in the median cap rate which jumped from 5.64% in 2009, to a current median of 6.18%. However, compositional factors play a role in the data. The handful of sales in 2009 were mostly small (7-8 unit) buildings in good locations, which sold at a premium; while the one large (106 unit) building that sold last year traded at a 6.5% cap rate. Cap rates so far this year range from 5.6% to 7%, depending on location, condition, and unit mix. The largest property that changed hands to date in 2010 was 56 units, with an average of 22 units per building sold. As the economy shows modest signs of recovery, investment capital that has been parked on the sidelines is creeping back into the marketplace. While lenders, as well as buyers, are being much more cautious and strategic about investment decisions, apartments are well positioned to benefit from the realignment of values and priorities spreading across the country. Homeownership is no longer seen as the goal by many who are choosing the flexibility and affordability of renting. Growth in demand for apartments is also being fueled by young people venturing out of their parents’ nest, and by those who no longer have the down payment, qualifying income, or job security to purchase a home. The mortgage markets are responding to these trends with renewed interest in making multi-family loans at more reasonable terms than have been offered for the past two years, which should fuel additional sales volume in the coming months.
All information provided herein is from sources deemed to be reliable, but no guarantee or warranty is stated or implied.
Copyright 2010 Dyer Sheehan Group, Inc.
Copyright 2010 Dyer Sheehan Group, Inc.