Shaver, Les
The apartment sales market had another strong month in February. This time it was portfolios, specifically Clarion’s $3 billion purchase of Gables Residential, that drove volume. Individual sales only rose a small amount.

Overall, sale volume jumped $9.7 billion, which is a 65% increase year over year. Through the first two months of the year, volume is at $19.4 billion, which is 57% higher than the first two months of 2014. Cap rates also fell slightly in February in both garden and high-rise.

“Overall, apartment cap rates average just over 6% and the top quartile is under 4.6%,” RCA said in the report. “With seven- to 10-year mortgage rates now averaging slightly below 4%, there is still positive leverage in the market.” 

RCA’s observations seem to be consistent with what’s happening in the market. For instance, in Dallas, Taylor Snoddy, managing director in Transwestern’s Dallas multifamily group, says pricing is as strong as he’s seen over the past 10 years. 

“We’re at a pricing level that’s higher than 2005 and 2007, but we’re also fundamentally better,” Snoddy says. “Our rents are higher and our market is more fundamentally sound," says Snoddy. 

One driver is that some investors are balking at deals in Houston because of oil issues, and some of that money has found its way to Dallas.

“We see more people coming to Dallas that are crossing Houston off the list,” Snoddy says. “We’re seeing as much or more activity than we saw last year. The market appears to be as frothy as it ever been.”

But really, pricing pressure is a national story. With the amount of buyers, coming into the market, it’s a simple supply/demand equation. There’s more money than apartments available

“In 2014, the capital flows into real estate, particularly multifamily, were unprecedented compared to any other year in the sense of diversification,” says Brian E. McAuliffe, senior managing director for Los Angeles-based CBRE Group. “More buyers from more places are attracted to the U.S.”

McAuliffe says a number of private equity groups got involved in apartments in the second half of 2012. He expects that to continue.

“It’s a combination of factors [for why private equity came in],” McAuliffe says. “As they became more knowledgeable about the values, they were willing to take slightly lower yields in an effort to invest large chunks of capital.”