Recent Sale Shows Some Apartments are Returning to Pre-Pandemic Pricing

While there is lingering concern about rent payments in the apartment sector, it is clear that many multifamily properties are trading at pre-pandemic pricing.

Need proof? Look at Equity Residential’s recent sale of Vantage Pointe, a 679-unit apartment property located in downtown San Diego.

EQR sold the property for approximately $312.5 million at a disposition yield of 4.1%, which generated a preliminary unlevered IRR of 8.8% over the REIT’s ten-year ownership period. Mark J. Parrell, Equity Residential’s President and CEO, said that the company sold the asset at the price it had ascribed to it before the pandemic.

Overall apartments are reaching pre-pandemic metrics, including pricing. In fact, values for apartments improved in November, posting a 7.6% YOY increase, according to Real Capital Analytics. RCA says annual returns for the sector have hovered in the mid-7% range over the last few months. 

Recent data from Yardi Matrix backs this assertion. Yardi says acquisition yields for apartments have barely budged throughout the year. Falling Treasury yields have helped keep prices stable, it said, noting that the 10-year Treasury rate was above 1.5% until late February and then fell as low as 0.50% in March before recovering to about 0.90% in mid-December. “That gives property buyers a large premium over the risk-free rate and cost of debt, even with historically low cap rates,” according to Yardi.

But even in August, multifamily pricing was strong.

“You are still getting pre-COVID values for a lot of properties, depending on the real estate and operations. That is the opposite of the perception,” Mike Hanassab, a senior director at James Capital Advisors, told GlobeSt.com at the time. “That is important to know, and it is important to educate clients so they understand the market dynamics.” 

Hanassab and his partner, Elliott Hassan, sold two properties in Los Angeles around then for close to pre-pandemic pricing. 

One property was a prime candidate for strong pricing during the pandemic because rent collections exceeded the national average. “In this particular deal, the property had 98.5% collections throughout the pandemic, and I think that was a testament to the ownership and the quality of the tenants in the building,” said Hanassab. “Ultimately, an investor paid 98% of the original list price.”

The other property performed markedly worse during the pandemic; however, the value came in close to the pre-pandemic market. There were five vacancies and seven additional tenants weren’t paying rent due to the pandemic. Income in the property was completely off, according to Hanassab. “The buyer snuck in before it went to market. He wasn’t concerned about the loss of income, and he still was able to get a 70% loan-to-value. We think that it could have traded for $500,000 more if it had gone to market.”

Still, pricing depends, to some extent, on operations and location. “Every property is a case-by-case situation, based on location as well as operations and rent collections. Properties with bad operations are not going to be able to get top dollar, but well-managed properties are still going to go out there and do well based on collections,” Hassan said.