Bell Partners’ Formula for Finding Apartment Deals In the Current Environment

Last month Bell Partners announced it had purchased Silverado Apartment Homes, a seventeen-year-old, 492-unit apartment community located in Murrieta, Calif., for which it paid $146.5 million. It now joins the 11 apartment communities in Southern California that the company either owns or manages.

A prodigious buyer and seller of apartment assets over its 50-year history, so far this year Bell Partners has completed $500 million in transactions. In a typical year it will close between $1 billion to $2 billion of deals. This year, says CEO and president Lili Dunn, the company will likely be on the lower end of that range.

That is because, as everyone in the industry knows, 2024 continues to be a difficult environment for transactions of all CRE types including multifamily, which is down about 60% due to capital markets volatility and elevated interest rates. There also remains a price expectation gap between buyers and sellers, Dunn notes. “Sellers are generally looking for a cap rate in the mid to high 4s, while buyers are looking for a cap rate in the low to mid 5s,” she says. “So a lot of sellers are refinancing and delaying sales.”

Still the company is steadily acquiring and selling assets by following its long-standing formula of being a cautious buyer and opportunistic seller. “There are opportunities right now for both buying and selling,” Dunn says. “We are carefully active on both sides.”

It helps that Dunn believes that the decline in valuations has mostly stopped for quality apartments. Since the market peak in Q4 2021, property values are down 20% to 30% and down 5% YoY.

In the current environment, this is the narrow path that Bell Partners is following: For sales, it seeks to harvest value by marketing properties that have five years of seasoning and can demonstrate cash flow and offer assumable financing. Such products fetch the top dollar.

For its purchases, it is doubling down on a formula it has long ago developed: Assets in high-quality locations that are near major employment centers and lifestyle amenities and easy access to transportation. “In times of inflection we place greater emphasis on prioritizing these assets with durable cash flows,” Dunn says. Silverado Apartment Homes, for example, checks all of those boxes.  “We stay clear of lower-quality commodity type assets.”

With an emphasis on cash flow, Bell Partners is being cautious about the Sunbelt where oversupply is suppressing cash flow. Instead it is seeking quality assets in micro urban locations that it thinks will rebound.

“We always gravitate towards quality, especially now, and when we buy we then focus on enhancing performance returns.”