Despite the high level of activity, there's a gap between seller expectations and buyers' financial limits. Cap rates are rising, although for some institutional buyers snapping in high-quality properties in primary markets, that uptick is slight.

"The motivation of the sellers is difficult to gauge, but is very important," maintain RCA analysts. "While there are some distressed sales, they primarily have involved failed condos, development deals or cases of fraud. Beyond that, few sellers are under great pressure to sell, and if occupancies do benefit from the housing mess, there may not be too many additional distressed sales in the apartment sector."

Flipping to the buyers' side, institutional and private players came out as the most active buyers once the year-end numbers were tallied, accounting for roughly 80% of total acquisition volume (split 50/50). Both investor groups have significantly increased their activity in 2004, but that growth has slowed, especially for private buyers.

Institutions bought $36.5 billion in apartments in 2007, a 49% increase over 2006. That figure, though, includes the $22-billion acquisition of Archstone-Smith. Further, these buyers' average deal size--about $57 million--was much higher than that of other players, and their cap rates of 5.7% were the lowest in the investor pool. Nearly 80% of their acquisitions were in portfolio deals. They also teamed up with local partners in joint ventures 80% of the time.

Reflecting the tighter credit market, private buyers posted a mere 8% increase in activity, but they remain the most active capital sector for apartments--taking up 66% of the deals in terms of the number of properties that changed hands, but only 40% of the dollar volume. Cap rates on their deals were the highest among capital sectors at 6.1% and average prices were the lowest. Portfolios comprised 25% of their activity, and 80% of their buys were made with JV partners. "With lenders so focused on experience now, there may not be as many new buyers surfacing in 2008 as in the past few years," RCA adds.

The biggest increase in activity was seen among foreign buyers, though they're still the smallest buying group for multifamily assets. They bought a record $3.2 billion in apartments in 2007, representing just 5% of the properties sold. Half of their activity was in portfolios and the rest were one-off acquisitions of large projects, typically high-rise communities in urban areas.

As in 2006, activity by public REITS was down in 2007--a 30% decline to $4.9 billion, the lowest level since 2003. Since 2002, REITs' share of the sales market has dropped from 15% to just 5%. Their average properties picked up tend to be larger and higher quality than most others that trade, while the average price they paid was the highest of all capital groups and 40% above the market average. Though they haven't been buying too many apartments, they're selective with their plays. Fewer than 25% of their purchases were done in portfolios and very few involved JV partners.

Meanwhile, private equity funds have steadily increased their exposure to the sector, taking the number-three spot for the most active capital sources. Some 60% of private equity funds were active buyers of apartments last year, but funds still account for only 6% of the national multifamily market, based on the number of assets changing hands. More than 80% of funds' activity was done through portfolios and with JV partners, and a good majority of it was due to Tishman Speyer's buy of Archstone Smith. Their average deal size was $37 million, while their average cap rate of 5.9% % was much higher than that of institutional buyers.

Three-quarters of all apartment deals done in the country last year involved national investors, while local buyers have reduced their market share in the past five years. Many of the institutions and funds buying multifamily assets are based in New York City. In fact, players based there took part in $57 billion of apartment deals outside of the city last year. Charlotte, NC--due to Bank of America's participation in the Archstone deal--and Chicago, Los Angeles and Boston were the next largest centers of capital. Interestingly, $1 billion of capital into the apartment sector came from 17 US markets and one foreign city, Sydney.

"The increasing geographic scope of buyers," say RCA researchers, "means that capital now easily moves across markets looking for opportunities with the best risk-adjusted return and keeps prices for comparable markets in check."