DATA POINTS: Activity, Volume Continues Decline as Tactics Change

NEW YORK CITY-Even the flow of capital from Fannie Mae and Freddie Mac couldn’t protect the multifamily investment market from the impact of the credit crunch. Deal volume has plummeted from last year’s levels, reports Real Capital Analytics in its most recent report. In fact, activity was off in nearly every metric the locally-based firm utilizes, including dollar volume, square footage, number of properties sold and deal count, and are down for both single-property as well as portfolio trades.

Between January and March, about $12.1 billion of multifamily deals worth at least $5 million closed, down 40% from the $20.7 billion that were completed in the first quarter of 2007. Transactions involving both garden and mid/high-rise assets were down 51%, as were one-off deals. Portfolio sales also dipped, but by only 9%; RCA analysts point out that the bulk purchase activity was bolstered by UDR Inc.’s $1.7-billion portfolio sale.While buyers may be visibly retreating from the market, it seems that sellers haven’t received the memo, yet. “Asking prices have yet to reflect a significant rise in cap rates,” says RCA, “but more sellers are becoming cognizant of the new pricing paradigm and others are choosing to pull assets from the market.” Property owners put another $17.8 billion worth of communities on the market in the first quarter, representing a 41% surge from the same period last year. After the credit crunch hit, would-be sellers unloaded $50 billion in apartments onto the auction block.”While average cap rates are up modestly, apartments have not witnessed the clear inflection point as other property types, where cap rates are up 50 to 75 bps since the onset of the credit crunch,” researchers add. “For former high-flying condo markets, average prices are well off their highs, but there are still record deals being reported in markets such as Manhattan, Seattle and Houston.” Indeed, some areas fared better than others. For one, those locations with heavy exposure to assets involved in the UDR deal saw their activity level rise. In Columbus, OH, deal-making was up a whopping 224%; in Raleigh/Durham, NC, 104%; and 65% in Houston. Still, more than two-thirds of apartment markets in the US saw lower sales in the first quarter versus the same period in 2007.

Drilling down into individual markets, the New York City boroughs saw sales dip a bit, to more than $2 billion of assets over the past year. With a historical high of just $117,000 per unit, many investors are choosing the city’s outer boroughs over Manhattan, where rental assets are trading at an average of $350,000 a unit. A bulk of the players there were private, but several national and institutional funds were also active in the first quarter.