In the first half of 2015, $63.2 billion worth of apartments changed hands, a 37.6% increase compared with last year, according to Real Capital Analytics (RCA). The second quarter produced $29.7 billion worth of this activity, a 13% increase over 2014’s second quarter.
“The declining volume in the mid- and high-rise segment is, in part, a story of comparatively limited portfolio- and entity-level activity,” RCA wrote. “Only 23% of all deal volume in the apartment sector was driven by such mega deals in the first half of 2015; this is the smallest share of any property sector.
"With only $8.3 billion of individual-asset sales in the second quarter of 2015, the decline in the pace of mega deals was simply too big for this segment to overcome and post positive growth for the quarter,” RCA continued.
Individual sales picked up the slack, though, jumping 45% for the first six months and 34% for the second quarter. For mid- and high-rise transactions, individual sales jumped 29% in the second quarter.
Not surprisingly, cap rates also fell year over year, dropping 20 basis points (bps), to 6.0% nationally in the second quarter.
“Much of this decline, however, was seen in 2014 with little change in average cap rates in the last two quarters,” RCA wrote. “This pattern, however, is not consistent across subtypes.”
Mid- and high-rise cap rates fell 40 bps in the second quarter and are now at 4.9% nationally. In the garden sector, cap rates fell 20 bps year over year, to hit 6.2%.
Since their high of 7% in 2009, cap rates have fallen an average of 100 bps. Mid- and high-rise rates have fallen 180 bps during that time, while garden assets have dropped 100 bps.
RCA says indicators support these higher valuations. “Growth trends in the Moody’s/RCA CPPI [Commercial Property Price Index] since 2009 align with the trends in cap rates for different apartment subytpes. Prices for assets in the six major metros are now 163% higher than the 2009 low points, while assets in the non-major markets are only 101% higher than previous lows,” RCA said in the report.
“The six major metro areas are more heavily exposed to the mid- and high-rise segment of the market, which is tied up with some of the relatively stronger price increases,” RCA noted.
RCA didn’t offer a prediction for the second half of the year, but with the Associated Estates and Home Properties entity-level privatizations closing, sales numbers could again see a spike in the third and fourth quarters of 2015.