Apartment sales continued with strong activity – similar to the past four quarters. For the 2nd qtr., there were 59 regular sales (10+ units), six multi-property (portfolio) sales, two partial condo sales, and four 3rd party trustee sales. Of the 59 regular sales, 35 had either new financing or assumptions of existing loans. Properties with financing options commanded a higher price than “all cash”. While it’s not easy to compare apples to apples for apartments, we have seen a trend of increasing values over the past year. We attribute this to a shortage in multifamily inventory and a steady stream of investor pressure. Since October 2010 (approx. 11 months) there have been 123 apartment trustee sales, of which 25 were purchased by third parties. These values have also increased.
From various news articles, we have compiled a list of 1,517 apartments currently reported to be under construction and 2,648 in the planning stage. Most of these are in-fill as opposed to the projects completed during the last decade that were mostly in the outlying growth areas. The renewed construction supports the belief that vacancies will continue to decline and rents to increase. The additional supply will not be much of a factor for a couple years, and will affect the class “A” market much more than the “B” and “C” quality properties. A map and list of all projects is posted on our web site – under “Apartments” – “Market Data”.
The Effect of the “Shadow Market” on Apartment Vacancy Rates
Year-to date, bank-owned and short sold properties have accounted for 66% of the home sales (37,855 out of 57,226) – many being purchased by investors. The number increases with the homes purchased at trustee sales (about 10,000 YTD). Instead of investors fixing and flipping houses, many houses are now being fixed and held as rentals due to the decreased spread between purchase price and resale value. This has caused an increase in rental inventory and may be a reason for the slight increase in multifamily vacancy rates. Each week, we report statistics on the “shadow market” in our e-zine. If you are not receiving this report, just go to our web site and click “send me updates”.
Residential re-sales hit a new median low price ($80/sf, $115,000) last month, but we expect the prices to start increasing. We base this on various factors: 1. the number of foreclosures is decreasing; 2. the overall inventory of available homes on the MLS is the lowest in many years (15,726); 3. the list price for homes, especially bank owned, has increased sharply since May; and 4. mortgage interest rates remain quite low. As home values increase, home rental rates will also increase – leading to higher apartment rental rates as well.
Jim Kasten, CCIM, Owner/Designated Broker.