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Optimistic Signs Emerge for Apartment Sales Market

Cap rates seem to have risen slightly and volume looks promising, but the buyer and seller expectation gap continues to hinder recovery.

By Sule Aygoren Carranza | Updated on August 01, 2008

NEW YORK CITY-Have cap rates finally started to trend up? Real Capital Analytics reports that at midyear, cap rates hit levels not seen since year-end 2004. The national average rate rose 25 basis points to slightly more than 6.5% between April and June, but, the locally based firm notes, the uptick was largely due to a half-point increase in Treasury rates during that time.

Whether cap rates have risen depends on the particular deal in a particular market. Marcus & Millichap Real Estate Investment Services Inc.’s Linwood Thompson, Atlanta-based managing director and head of the company’s national multi housing group, says cap rates have gone up as little as 25 basis points in a class A property in a primary market, 50 to 75 basis points in a class B asset in a secondary market, and as high as 100 basis points for lower-quality properties in tertiary markets.

As a result, sales activity is up again, at least month-over-month. June’s investment volume, combined with deals slated to close in the third quarter–some $5.5 billion worth of assets–is well above recent months’ totals. However, investment volume overall is down–the $8.7 billion racked up in the second quarter was down 33% from the $13 billion posted in the first quarter. Further, the first half’s volume was down 45% from the same period a year earlier. Still, RCA notes that investors seem to feel better about apartments than other property types, since the pace of decline there was slower than in office product (-68%) and retail (-63%).

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