Apartment transaction volume was three times greater in December than it was in February, according to Real Capital Analytics (RCA), but there’s no need to hit the panic button.
Yes, total February sales were $7.3 billion, which is a 31% year-over-year decrease, but in February 2014, there was a 72% year-over-year volume decline due to huge portfolio and entity-level activity in February 2013. In other words, there are peaks and valleys.
Transaction activity on mega-deals is down 58% year-over-year on sales of $1.9 billion, while single-asset sale volume dipped 11% on sales of $5.4 billion.
Single-asset deals in the mid/high-rise subtype remained steady year-over-year at $2 billion, but overall, entity-level transaction volume for mid/high-rise was down 28% year-over-year on sales of $2.3 billion, due to a 75% year-over-year decline in portfolio. Deal volume for the garden apartment subtype was down 32% year-over-year on sales of $5 billion.
Cap rates, which haven’t changed much in the last six months, stood at 5.8% for the sector overall in February. Garden apartments posted average 6.0% cap rates in February with mid/high-rise at 4.5%. In January, cap rates for garden apartments were 5.9%, and mid/high-rise assets were at 4.7%.
A look at 2015 Lending
Lending in the apartment sector has gotten more diverse since the worst parts of the recession, but GSEs remained the top lenders in 2015. However, the GSE market share dipped below 50% (to 49%) as regional (up two percentage points to 15% in 2015) and national (up three percentage points to 11% in 2015) banks steadily gain more ground.
“The sum total of international, national and regional/local banks constituted only 17% of all apartment lending in 2011,” RCA wrote in its report. “Steadily this figure has grown each year with these lenders capturing 29% of the market in 2015, up from 24% in 2014.”
GSEs top the list for garden apartment originators (Berkadia and CBRE are one and two, respectively), while banks are the leading originators in the mid/high-rise space (Wells Fargo and New York Community Bank place one and two on that list, respectively).
Since cap rates were low last year, it was the buyers more so than the lenders who took on more market risk. “No matter their market shares, all of these originators face an environment with prices at record highs and uncertainty over future values and how much risk is appropriate,” RCA wrote.