Q2 Apartment Sales Fall Below Pre-Pandemic Levels

Due to the rising cost of debt and the cloudy economy, U.S. apartment investments leveled off in this year’s second quarter, and sales fell below pre-pandemic levels, according to RealPage. The overall sales volume was down 72% year-over-year as almost 1,260 apartment properties were sold, valued altogether at $28.2 billion in this time frame, according to MSCI Real Capital Analytics. 

In contrast, 5,300 properties changed hands for a total value of $165 billion in the fourth quarter of 2021, in part due to pent-up demand after the pandemic emerged. The recent sales activity is also below the $42 billion quarterly average during the five years between 2015 and 2019, the years leading up to the pandemic.

The average price per unit also fell, hitting $196,672 in the year’s second quarter, which was down 19% YoY and the lowest in two years. At the same time, per-unit pricing in that five-year time period averaged $151,000. And cap rates for apartment transactions in 2023’s second quarter were up 70 basis points YoY or an average of 5.3%, the highest cap rate in almost four years.

In the environment, it is useful to look more closely at the five largest single-asset apartment transactions between April and June, which all occurred in the Northeast, Midwest and West. All featured well known neighborhoods and locations, pools and other amenities such as EV charging stations, grills and lounges, and some were rebranded with a new name after the sales transaction, helping new owners to breathe a new identity into the communities.

In New York City, real estate investor Black Spruce Management acquired a 45-story residential tower in April from Solow Realty, a division of Soloviev Group. The price was $403 million, making it the largest single-asset apartment transaction in the year’s second quarter. The 322-unit building at 265 E. 66th St. in the city’s Upper East Side and the Lenox Hill neighborhood dates from 1979 and was renovated in 2015. The purchase price worked out to roughly $1.25 million per unit. Building amenities include a doorman, concierge, fitness center, pool and sundeck. The location is near top city hospitals, restaurants and not too far from Central Park and the Metropolitan Museum of Art.

Boston came in second for a large transaction when Mesirow Financial purchased the Alta Revolution apartment community for $188 million in May from Atlanta-based Wood Partners. The 329-unit property sold for almost $571,400 per door and was located along Revolution Drive in Somerville’s Assembly Square neighborhood. The building was completed in 2022, though Wood had bought it in 2019 and completed the construction in 2022. The six-story building features a spa, pool, bicycle storage, game room, fitness center and clubhouse. It’s among the properties that gained a new name: Revolution at Assembly Row. The Somerville area is known for its inviting art, music and food scene, access to downtown Boston and proximity to Davis and Porter Squares and Tufts University in nearby Medford.

Across the country, La Jolla International Gardens in San Diego was the site of the third-largest apartment transaction during the second quarter. California-based Pacific Urban Investors purchased the 400-unit development from another California company, The Premiere Residential in late April for $117.3 million or $443,000 per door. The four-story community on seven acres in the La Jolla/University City submarket was built in 1986 and renovated in 2014. Amenities include a clubhouse, hot tub, pool, fitness center, sand volleyball court and barbecue grills. The new owner renamed the development Allina La Jolla and plans to modernize its amenities again, including expanding common areas and upgrading residential unit interiors. The area’s year-round good weather, beaches, ocean, animals and sea life all are big magnets for renting an apartment in the area.

Chicago was the site of the fourth largest transaction when Atlanta-based Invesco sold the residential part of a 50-story tower at 340 E. North Water St. in the Streeterville/River North submarket for a big loss. The company purchased the apartments for $240 million shortly after they were completed in 2016 and sold them to Miami-based Crescent Heights this past June for $173 million. The property known as North Water has 398 units, which means the price worked out to just under $435,000 per unit. A 400-room Loews hotel on the lower levels is owned separately and was not part of the transaction. Apartment amenities include EV charging stations, a rooftop pool and sky lounge, community lounge with kitchen and fitness center. The area is highly popular with nearby offices, Lake Michigan, the Museum of Contemporary Art Chicago, the Art Institute of Chicago, Navy Pier and many top restaurants. 

Coming in fifth was another Boston building, which changed hands in June when New York City-based Abacus Capital Group purchased the 294-unit Avalon at Newton Highlands apartment community from AvalonBay Communities, an equity REIT based in Arlington, Va. The transaction price was $170 million or $578,000 per unit. The four-story community is on Needham Street in Newton, an affluent Boston suburb. The property was completed in 2003 and features a pool and sundeck, sports court, fitness center, outdoor grills, EV charging stations, dog park, children’s playground and resident lounge with billiards. The name was changed to The Aven at Newton Highlands.