Multifamily To Lead Industry Out of Black Hole

NEW YORK CITY-A sense of relative optimism has pervaded the investment arena in recent months, and most players are confident the market is at least stabilizing, if not nearing bottom. And among the various asset classes, investors seem to feel particularly good about multifamily, which is expected to lead the commercial real estate industry in the recovery. That’s the consensus of the PricewaterhouseCoopers Korpacz Real Estate Investor Survey for the first quarter of 2010, titled, “Investor Sentiment Improves, But Challenges Persist in 2010.”

That’s not to say the sector is performing well. Rather, the national average vacancy rate sits at a historic high, climbing 130 basis points over the year to hit 8% at year-end, points out PwC, citing Reis data. Rent cuts and concessions—including an average of three months’ free rent, reduced or eliminated deposits and fees and merchandise giveaways—are now common practice in just about every market. The multifamily market, many investors believe, will “bump along the bottom” this year, with conditions changing little.

Like in other property sectors, sales activity has diminished for apartments, but demand is high for well-located, high-quality assets. PwC notes that a 92% occupied, 612-unit property in a good location generated 14 bids during its 21 days on the market, before being sold for $54 million to the Prime Group in a deal that took just two days to close. Another first-quarter deal involved a 254-unit asset near the California State University, which Strata Equity bought for $21.2 million, representing a 7% overall cap rate.