#1 Expect Meager Portfolio Trades.
Even coming off one of the larger multifamily portfolio transactions of 2010, Tom Toomey doesn’t hold much optimism for bulk apartment buys in 2011. “We’ll all have to take our cue from the banks and the GSEs on that,” says the president and CEO of Highlands Ranch, Colo.-based REIT UDR, which bought out Houston-based developer The Hanover Co.’s share of a 26-community, 5,748-unit joint venture with New York-based MetLife back in November. “The lenders all say volume will be up, but whether or not that means portfolio-level financing is available, we’re still going to see tight underwriting and slow processes. So I don’t see any portfolio transactions getting done. One or two, fine, but no big tidal wave.”
In addition to the lack of finance availability preventing execution by anyone without a multimillion-dollar equity fund, buyers seem to be finding better pricing on one-off deals, and solid operators are content to enjoy cash flow as rent fundamentals and NOI growth go into overdrive. “There are players in the market with an appetite for portfolios,” says Jeff Morris, managing director of Chicago-based real estate investment firm Jones Lang LaSalle. “It’s just a pricing issue for sellers who want to sell based on a list of market criteria—and it is hard to make a portfolio fit that list of criteria.”
Still, bidding closed in late 2010 on a 3,427-unit portfolio of assets being sold by Houston-based Camden Property Trust, with a buyer likely to be announced in the first quarter of 2011. NOI growth—even if it means attractive cash flow—will also boost asset values, which could make a block trade possible, despite a limited universe of buyers. “Logical portfolio buyers and sellers will be traded and non-traded REITs, pension funds, and other traditional institutional investors, as a result of increases in allocations to this sector,” says Mark Alfieri, executive vice president of Dallas-based real estate firm Behringer Harvard, which was the No. 2 buyer of multifamily properties through the third-quarter of 2010, according to New York-based Real Capital Analytics.