Dean Zander of Hendricks & Partners, whose new listings include properties ranging from 60 to 112 units at prices of up to $26 million, tells GlobeSt.com that the bid-ask gap appears to be closing. "Sellers understand that they are not in a five-cap environment any more" and are willing to list at prices near the six-plus caps that investors want these days, Zander says.

Greg Harris of the Harris Group at Marcus & Millichap, whose recent listings include complexes from 12 to 80 units at list prices of $1.2 million to $20.25 million, observes that, "The sellers in today's market have identified that in the short term, values will continue to erode before they appreciate again." Sellers today "are either trying to lock in their gains or are preemptively attempting to get around their loans coming due," Harris says.

[IMGCAP(2)]Marcus & Millichap broker Dave Harrington, whose recent listings include the historic Hillview Apartments in Hollywood, observes that many bids today still fall 15% to 20% below list prices but some smaller buildings are actually commanding list price or above. The Hillview is a restored 57-unit complex that was built in 1920 by movie mogul Sam Goldwyn of MGM and is on the market for just over $21.17 million.

Zander's listings include the 60-unit Marbella complex in the Miracle Mile and the 106-unit Mountain View, both owned by Essex Properties Trust, a REIT that "sees a great opportunity to sell a couple of their free and clear properties and buy back some of their stock at a discount," he says. Zander, who is co-listing the properties along with Vince Norris of Hendricks & Partners, describes the two Essex offerings and a third that is being sold by life insurer Principal Global of Iowa as "core properties that normally would not come to market except for particular internal demands from the owners." The Principal Global property is Hollywood Place, which Zander is co-listing with fellow Hendricks broker Joe Leon.

[IMGCAP(3)]The listing prices all represent cap rates higher than 6%. "We expect each of these properties to set a benchmark for institutional quality trades in 2009," Zander says. He expects the properties to trade at cap rates above 6%, compared with the caps below 5% of just a year or two ago. "I think that what will happen now is that the private capital that couldn't compete with the 4.5% cap rates that the institutions were paying will now come out and buy at these higher caps," Zander explains.

According to Harris, whose recent listings include the 80-unit age-restricted in Sylmar and the 69-unit Regency at Sherman Oaks, those private buyers have pretty much supplanted institutional buyers for now. "Nearly every transaction closed in 2009, whether small or large, has been sold to a private investor with a long-term investment horizon," Harris says. He describes institutional buyers as "essentially non-existent" in today's market.

Harris points out that most of today's offerings do not yet include the troubled assets that will eventually hit the market. "We won't see a wave of distressed selling until loans start coming due," he says. The bid-ask gap is starting to narrow, he says, "specifically because sellers' expectations are becoming more in tune with the realities of the market."

Buyers today are seeking value, not expecting short-term appreciation, but rather buying for the in-place cash flows, Harris says. "We're starting to see our private clients, who have been dormant for the last five years, inquire about getting back in again," he adds.

One of the most unusual of the recent offerings is the Hillview that Harrington is listing. Its 57 units include 54 apartments and three retail spaces in a building at 6533 Hollywood Blvd. that was built by Goldwyn as the first complex exclusively for actors.

Harrington says that a number of prospective buyers have already bid on the Hillview, in which the owners have invested substantially to restore and renovate the building. He says the two best bids are from buyers who already own properties in Hollywood, which makes a lot of sense in today's market, he says. "Your best buyer today is someone who owns nearby, still has money and is looking for deals," he says. Some other bidders, he points out, make offers well below the asking price in hopes of finding a bargain.

Despite the signs of a narrowing of the bid-ask gap, Harrington says that the struggle to bridge that gap continues because of the uncertainty in today's market and because many buyers believe they'll find better deals just by waiting. "They don't have to deploy a certain amount of capital in a certain amount of time, and they are in no hurry because they think prices are going to be lower later in the year and they will have more deals to pick from," he says.

Nonetheless, Harrington says that the right building in the right location will command asking price--or even above.

An example of a property that sold above list price is a 19-unit complex at 1035 Melrose Ave. in Glendale that traded for $3.2 million, more than 9% above the listing price, according to the brokers on the deal, Jim Fisher and Mike Smith at Lee & Associates-LA North/Ventura Inc. "The property drew 11 offers in just five days," notes Fisher, a principal at Lee's Sherman Oaks office. The property, built in 1961, sold at a 4.66% cap rate after just 16 days on the market in a deal betweeen two private investors.

Several factors contributed to the premium price, according to Smith, who is an Associate at Lee's Sherman Oaks office. "This apartment house offered a new owner the opportunity to rehab units and achieve some upside in the rents," Smith says. Additionally, the property's location, north of Glenoaks Boulevard, "is among the most desirable in all of Glendale," he says.

Establishing the list price is a different proposition today than it was when the market was hot, according to Marcus & Millichap's Harrington. He explains that, with so few deals closing, brokers sometimes have few if any recent comparable sales to include in their offering packages. As a result, offering packages today are more likely to include "on-market comparables" that show the asking prices that other sellers are asking for comparable properties in today's market.