NEW YORK CITY-Optimists have to look very closely to find any positive signs in the investment market these days. At least, that’s the take of analysts from Real Capital Analytics in its latest Capital Trends Monthly report. Fewer than 100 apartment properties, worth $5 million or more, changed hands in April for a total of $1.2 billion. That’s a mere 30% of the volume racked up in the first quarter of the year. It’s also a precipitous drop from the same time last year, when sales were 81% higher. Sellers are beginning to see that the market has slowed, but not enough to close the gap between buyers’ and sellers’ attitudes. New offerings were down 25% from March, but new listings still outnumbered actual closings by $4 billion. Since the beginning of the year, $23.2 billion of apartments were put on the block, but only $13.7 billion in sales took place. The decline in sales in April can be attributed to a number of factors, say RCA analysts. “No major high-rise properties closed last month and just one small portfolio sale was recorded, even though several pairs of assets did trade,” they write. “Only one sale topped the $50-million mark, illustrating the difficulty in financing larger deals. In addition, interest rate volatility may have also spooked some buyers, as 10-year Treasury rates rose by nearly 50 basis points during April.” The drop in sales volume hit nearly every market and region similarly. Across the country, volume was down 46% year-to-date. The greatest decline was in the Mid-Atlantic, which saw sales fall by 62%, while the Southeast and Southwest saw declines around 38%. Interestingly, some markets, including San Francisco; San Jose, CA; Tampa, FL; Portland, OR; and Raleigh, NC; saw their sales go up. Volume wasn’t the only factor to see a decline. Pricing fell as well, to just below $100,000 a unit, and cap rates rose six basis points. “However,” adds RCA, “some of the variation in pricing may just reflect the thin market and a change in the quality or composition of the assets that are trading.” Many of the communities that are changing hands have yet to reflect a pricing correction, even though bids are coming in much lower than asking prices. The Moody’s/REAL Commercial Property Price Index reported an uptick in the first quarter, while some observers believe cap rates on prime properties may actually go down this year. It also depends on if the location—prices are doing well in the top 10 markets in the country, which saw a decline of less than 2.4% on average. Prices for the US as a whole, meanwhile, were down an average of 3.4%. Still, sellers are sticking firm to their offering prices despite the lack of buyers willing to meet those figures. “In the meantime,” says RCA, “capital continues to accumulate on the sidelines waiting for conditions to change.” Despite the capital crunch, some buyers remain active. Just a dozen players participated in more than three transactions this year, and the most active was UDR Inc. with six deals involving eight properties. The REIT is currently redeploying capital gained from its portfolio sale to DRA and Steven D. Bell.Four of the top 10 players were institutional, while foreign participants are not clamoring for apartments the way they are for other property types. Meanwhile, private investors, fueled by agency financing, have been more active in the multifamily sector than others. Institutions, though active, have curbed their appetite for apartments this year. Half of the $3.4 billion in institutional activity to date, came from the $1.7-billion DRA-Bell purchase of UDR’s properties. Institutional market share fell from 25% to 20% over the year, but since those players aren’t selling much either, they remain net buyers. Further, cap rates on institutional deals, which were pretty low in past years, have risen to become more in line with most other apartment deals. “Pension funds had planned to boost commercial property acquisitions this year, but the ‘denominator effect’ has curbed some of their demand,” says RCA, adding that there does remain a large pool of equity capital committed for investment. The most active private buyers account for 40% of total acquisitions and 55% of the number of properties sold. Many of the deals are leveraged, one-off transactions done on their own, with a preference for garden communities. And while they may have flocked out of state in the past, using 2031 exchanges and CMBS conduit financing, many now tend to go after local properties. Like their institutional counterparts, private investors have also slowed their disposition activity to become net buyers for the first time since condo converters caused prices to spike at the end of 2004. “The private sector bears watching over the near-term as it currently holds great influence over the direction the market will take,” note RCA researchers.