"The attitude towards multifamily has completely changed in the past year," said Dave Doupé, managing director of Jones Lang LaSalle’s West Coast Capital Markets team. "Financing from Freddie Mac and Fannie Mae has certainly bolstered the viability of this sector, but we’re also seeing buyers and sellers begin to come closer to a common ground on pricing discovery in the multifamily product category."
CoStar information confirms a number of multifamily property sales of $20 million or greater announced over the last couple of weeks across such diverse markets as Phoenix, Oklahoma City, Houston, Silver Spring, MD and North Manhattan. In the largest and most recent deal, Equity Residential closed on its purchase of the Metropolitan at Pentagon Row, a 15-story, 326-unit apartment complex in Arlington, VA, from joint venture partners Cornerstone Real Estate Advisers and Kettler in a cash deal for $100 million, or about $306,748 per unit, according to CoStar COMPs.
At the same time, development of new apartments, which virtually evaporated in 2009, is also making a reappearance. AvalonBay Communities, Inc. (NYSE:
AVB) surprised analysts last week by announcing two new developments in the northeast totaling $66 million scheduled to begin in the current quarter.
Alexander Goldfarb, REIT analyst with Sandler O'Neill, said it's not surprising that AvalonBay revealed its intentions at this time, given the long lead time required to deliver new product.
"Assuming the job market begins to firm by the end of 2010, the balance of power begins to favor apartment landlords starting in 2011," Goldfarb said in an investment note. "Thus, [AvalonBay] would need to start building in earnest in 2010 to deliver into the front wave of the next cycle."
Meanwhile, Citi just upgraded Equity Residential (NYSE:
EQR) from sell to hold based on an array of factors, including modest, tentative signs of stabilization in its markets, an improved outlook for 2010, attractive pricing for its shares, continued control of expenses and EQR's successful disposing of a number of properties that eventually will position the REIT for growth.
"It remains premature to call a plateau, however, as some markets continue to spiral, [for example] Phoenix. EQR appears to have traversed the steepest part of the macro slope and is increasingly positioned for recovery," Citi analyst Michael Bilerman said in a note to clients.
A pair of new reports also reveals signs of improvement in apartments. In a survey by Jones Lang LaSalle released this week, more than two-thirds of respondents said they expect multifamily will outperform office, retail, industrial and hotels in 2010 - and not by a small amount, as much as 30%. Also, nearly 95% of those surveyed said they expected to ramp up investment and development in the coming year. It's a marked reversal from a year ago, when 67% predicted that multifamily would underperform other commercial real estate sectors by virtually the same amount.
JLL surveyed owners, developers, investors and commercial real estate service providers for its Cross-Sector Survey at the Urban Land Institute's Fall Conference this week in San Francisco. The company conducts the survey each spring and fall.
A second report, the latest quarterly survey by the National Multi Housing Council (NMHC), also finds evidence of improvement, with price gaps narrowing, apartment sales heating up and debt and equity capital more readily available. The council's sales volume index hit its highest level in four years, while the equity and debt financing indices were the highest in three years, according to survey results last week.
"The broad improvements in sales volume and debt and equity financing suggest the transactions market may finally be thawing," said NMHC Chief Economist Mark Obrinsky, adding that nearly half of respondents indicated that the gap between what sellers are asking for and what buyers are offering has narrowed.
However, the evidence of an upturn isn’t yet overwhelming. Employment markets continues to sag and demand for apartment residences continues to slip, according to the NMHC. An index measuring "market tightness" shows that vacancies remain high and rents depressed. The index improved from 20 to 31 in the third quarter, but it remains still well below 50, the tipping point between growth and decline.
AvalonBay was careful in its recent third quarter earnings call to emphasize that, despite modest signs of portfolio and capital markets improvement, it does not believe their markets are near a recovery or inflection point on the path to positive growth. However, the company is stockpiling capital and reducing leverage in anticipation of future growth opportunities, Bilerman said
"While not surprising in that construction is in [AvalonBay's] DNA, new starts are a risk," wrote Citi REIT analyst Michael Bilerman in an investor note. "
In addition to being among the active buyers, Equity Residential continues to sell aggressively at caps in the 7’s, with proceeds earmarked for debt retirement and investment redeployment.
Despite the overall upbeat tone, management expressed caution and noted that rents will continue to roll down for some time. Markets that were late to the downturn, for example, California and Seattle, are seeing the worst year-over-year comps now. Move-outs to home purchases appears to be increasing.
Rising markets include Washington, DC, Boston, South Florida and Orlando. Market still in the skids include Los Angeles, Orange County, San Francisco, Seattle and Phoenix. "The West Coast is in the early innings," REIT analyst Goldfarb said.
The sale of The Metropolitan at 1401 S. Joyce St. in the Pentagon City/Crystal City submarket of northern Virginia a vivid example of the D.C. market's strength. The Metropolitan, adjacent to Simon Group's 1 million-square-foot Fashion Center at Pentagon City complex and Federal Realty Investment Trust's 296,000-square-foot Pentagon Row retail center, is 95% leased.
In addition to the Metropolitan, recent transactions of +$20 million tracked by CoStar across the U.S. include the following:
Investment Property Associates (IPA) purchased the San Melia Apartments in Phoenix from TIAA-CREF for $47.82 million, or $98,000 per unit. Located at 14435 S. 48th St., the 493,192-square-foot multifamily property features 172 one-bedroom units, 244 two-bedroom units and 72 three-bedroom units. The property was reportedly 96% occupied at the time of sale. Brad Goff and Bret Zinn of Apartment Realty Advisors represented TIAA-CREF. Cindy Cooke and Brad Cooke of Colliers International in Phoenix represented IPA. (CoStar COMPS #1814971)
Cornerstone Development acquired three Oklahoma City area apartment complexes for $44.5 million, or $44,000 per unit, in the region's largest commercial property transaction so far this year. The portfolio included the 368-unit, 245,216-square-foot Watersedge Apartments in Oklahoma City; the 157-unit, 84,904-square-foot Gardens at Reding, also in Oklahoma City; and the 488-unit, 354,408-square-foot Oxford Oaks Apartments in Edmond. Andy & David Burnett with Sperry Van Ness-William T. Strange & Associates represented the seller in the deal, SIA Partners of Santa Barbara, CA. The deal closed less than five months after the portfolio went under contract. Existing Fannie Mae bonds were paid off and financing through a new HUD loan made the sale possible. (CoStar COMPS #1806686) .
Home Properties Inc. sold the Morgan Crossing Apartments at 146 Chestnut Crossing Drive in Newark, DE, to Morgan Management LLC. Freddie Mac provided $24.72 million in financing. The loan features a 10-year term and a 30-year amortization schedule. The 432-unit, 371,520-square-foot multifamily community sits on 13 acres. Andrew Jonas of The Kislak Co. represented Home Properties Inc. in the transaction. (CoStar COMPS # 1799458)
Bankrupt developer Opus West sold McDowell Village in Scottsdale, AZ, to West Development Inc. for $24 million, or about $122,000 per unit. The 197-unit, 212,709-square-foot senior apartment community at 8300 E. McDowell Road was built in 2005 in the South Scottsdale submarket. Lisa Widmier of VantAge Pointe Capital Management & Advisory Inc. represented the seller. The buyer was self-represented. (CoStar COMPS #1813094)
Metrovest Equities sold the multifamily building at 1420-1428 Fifth Ave. in New York to L&M Development Partners Inc. for $21.93 million, or about $182,700 per unit. The six-story, 120-unit apartment building was built in 2007 and totals 115,728 square feet on two acres. The property is one of the largest remaining development sites in Northern Manhattan. The buyer plans to build a 180,000-square-foot to 260,000-square-foot multifamily building on the site. Shimon Shkury, Mike Tortorici, Victor Sozio, Ivan Petrovic and Christopher Lefferts of Massey Knakal Realty Services Inc. represented the seller, while the buyer was self-represented. (CoStar COMPS #1810887)
Nevins Adams Lewbel & Schell (NALS) acquired the 268-unit Colonnade Townhomes in Hillsboro, OR, from Prudential Real Estate Investors for $21.4 million, or about $80,000 per unit. The 289,426-square-foot multifamily complex at 20311 N.W. Colonnade Drive was built in 1996 and sits on 12.5 acres. The property consists of 140 one-bedroom/one-bath units, 96 two-bedroom/two-bath units, and 32 three-bedroom/ three-bathroom units. Kirk Taylor and Ann Blume of CB Richard Ellis represented the seller, while the buyer was self-represented. (CoStar COMPS # #1792352)
Mid-City Financial Corp. closed on the purchase of the apartment complex at 14120 Grand Pre Road in Silver Spring, MD, for $20.8 million, or about $108,333 per unit. Equity Residential was the seller. Aspen Crossing, a 192-unit garden apartment complex, was built in 1979. Its occupancy is about 96%. Bill Roohan, Mike Muldowney, Andy Boyer, Michael Rudolph and Brian Margerum of CB Richard Ellis's Washington, DC Multi-Housing team brokered the sale. The CB Richard Ellis Capital Markets Mid-Atlantic Debt & Equity Group, led by Maury Zanoff and Joe Donato, arranged the financing for the buyer. (CoStar COMPS #1789442)
The Flat, a 206-unit apartment complex at 750 S. Garland Ave in the City West area of Los Angeles, recently sold for approximately $20 million. (CoStar COMPS #1793349)
In new development, Bridgewood Property Co. and Harrison Street Real Estate Capital have begun construction of a 207-unit in The Woodlands, TX, master-planned community north of Houston. The project is scheduled for late-2011 delivery. The Village at The Woodlands Waterway is a senior living rental community providing assisted living, memory care and independent living units along The Waterway in The Woodlands Town Center.
By
Randyl Drummer
November 4, 2009
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