Meanwhile, after months of putting their properties on the block, sellers are increasingly deciding to hold onto their assets. Whereas new offerings were triple the number of closed deals all year, at $10.4 billion, in April, just $1.8 billion in assets were put up for sale--a two-to-one ratio.
On the bright side, it's the second month in a row that fewer newly distressed assets have come onto the marketplace--$1.1 billion in April, and $8.3 billion for the first four months of the year. Still, the volume of distressed assets in the apartment sector is the second highest among all property types, with mid and high-rise and low-income properties seeing the highest rates of default among their counterparts. Further, the $14.4 billion worth of communities in potential distress or "unresolved trouble" looms over any positive steps the sector may experience.
In terms of sales, the volume of apartment property trades slowed at a lower pace than most other property types, thanks to the availability of financing for the sector from Fannie Mae and Freddie Mac. But given the state of the financial market over the past few months, multifamily sales volume is now on par with the overall industry--down 75% to 80% on a year-over-year basis.
Volume fell across all subsets of the apartment spectrum, as garden- and mid to high-rise assets all took a dive. The only exception was the student housing niche, which actually saw sales volume grow. However, RCA notes that the figure is deceptive, since it's skewed by American Campus Communities' acquisition of GMH Communities a year ago. Once that deal falls out of the trailing 12-month average, "this slight positive will turn sharply negative."
The goods news--and yes, there is some--is that there are more higher-priced communities changing hands. Six deals closed above $50 million in April, the first to sell at that level all year. Northwestern Mutual sold all of the properties, and Fannie Mae provided the financing for five of them. In fact, Northwestern closed nine deals between January and April for an aggregate $530 million, accounting for 20% of total multifamily sales volume.
Cap rates, too, are on the rise, after peaking in early 2006--much earlier than most other property types--caps are up 100 basis points. The spread between cap rates for commercial properties and that of garden communities has fallen from 100 basis points to between 25 and 50 basis points. That gap, say RCA researchers, seems low since the financing cost for multifamily properties is significantly less--about 150 basis points--than for commercial.
"The positive influence of the GSEs may have been discounted after they were nationalized, but over the past month, it appears buyers are starting to see the opportunity the GSE's have created to invest at relatively high cap rates and finance at relatively low interest rates," analysts point out.
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