(To read more on the multifamily market, click here.)
WASHINGTON, DC-Investors continue to focus on opportunities in class B multifamily units in the area, drawn by low vacancy rates and a growing spread differential in rents with class A facilities, according to the latest research by Delta Associates.
Vice president Grant Montgomery tells GlobeSt.com that a trend among investors is to acquire class B and class C units, renovate and reposition them--even if only slightly--and then raise rents. It is a typical strategy of course, but is particularly well suited to the DC market's current environment. "Even after the new owners raise rents it is still seen as a bargain by renters," he says.
According to Montgomery there are 19,000 class B units under renovation right now. Through August, there have been a total of 34 sales in this category--29 class B garden apartment trades and one high rise--trading at an average price of $123,427 per unit. That is nearly 11% higher than the average unit price realized during the same period last year, when 24 class B garden sales were recorded, according to the report. In the class A category, by contrast, there have been 11 garden apartment sales and one high rise trade.
Class B apartment rents are up and vacancy rates are down year-over-year the report also finds with average rent rates increased to $1,266, up 6.9% from a year ago and vacancy decreased by 90 basis points to 1.7% during the same period.
Most of these trends began to develop over the last few years, Montgomery says, but are gaining significant momentum in 2006. For instance, another trend, rent compression between class A and class B apartments began to ease last year somewhat but is now widening enough to induce more renters to look at class B units. In early 2005, class B rental rates were close enough to class A rents that tenants were able to live in class A buildings for not much more money, Montgomery explains. Class A rents have since risen; significantly in some cases.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
