Off-Market Apartment Deals Don’t Always Come With a Lower Price Tag

In the last few years, competition for multifamily deals has encouraged investors to pursue deals off-market. For buyers, the aim has been to curb competition, not necessarily to buy at a reduced price. For sellers, on the other hand, off-market deals come with a bad reputation that they automatically equate to a lower price tag. Thomas Foley, co-founder and CEO of Archer, says that it definitely not the case.

“Off-market deals likely have that stigma of lower prices from when the industry was much less institutionalized,” Foley tells GlobeSt.com. “In general, we’ve seen that most of the off-market sellers, particularly in the institutional space, sell because they are given ‘an offer they can’t refuse’, which gets them well into their target returns much earlier than expected.”

In general, deals that trade off-market are comparable to those that go through the full marketing process. “There is unfortunately no alternative universe where we can observe the counterfactual, but we can see the pricing comparing those deals to similar marketed deals and in many cases, find that the off-market deals tended to transact at or even sometimes above the market trending price,” says Foley, adding that this has been especially true at his firm. “In particular, with Archer’s clients, every off-market deal that we’ve assisted acquisitions teams has been above or at the top of the market price point.”

While off-market deals have become an expected standard for all players, both private and institutional buyers are leveraging the strategy, they are becoming more common in secondary markets. “Off-market transactions are even more common in secondary markets. Part of the reason is as a secondary market gets more attention by new, incoming investors, the prices that they are willing to pay, though still a significant discount to the prices of the gateway markets they may be used to, are often major premiums to what the current owners have historically seen,” says Foley.

Overall, off-market deals are prevailing in areas where competition is high and supply is limited. According to Foley, “In general, those markets have lower supply, are less liquid, and less brokerage coverage—so there is more of a willingness by owners to entertain these advances—especially when seeing bids at or well above their prior perception of market.”