The recession is officially over, and happy days are here again. Nowhere is that perhaps more true than in the multifamily space, where the transaction volume for apartments has rebounded to 2008 levels, according to a report released this week by Encino, Calif.-based Marcus & Millichap. Transactions accelerated particularly in the second quarter, the Economic and Apartment Outlook report notes, with increases driven largely by the $5 million to $10 million and $20 million to $40 million segments.

“Investors have begun to accept that a wave of deeply discounted, distressed opportunities may never materialize,” the report says. “At the same time, finaincing constraints have eased as the agencies and life insurance companies became more aggressive in their pursuit of high-quality deals.”

Even firms typically focused on third-party fee management are getting in on the buying spree: Dallas-based Pinnacle, an AMS Co., announced this week its acquisition of Shorewood Heights, a 645-unit community set on 45 acres on Mercer Island in Washington state. “Shorewood Heights is an iconic, irreplaceable asset,” says Pinnacle president and CEO Stan Harrelson. “Mercer Island is zoned to not exceed 90 acres for multifamily dwellings, and Shorewood Heights comprises 45 acres of that, so we have some of the only apartment developable land left, and its location in the Seattle market is consistent with our acquisition focus, which also includes Portland, Southern California, Minneapolis, and the Mid-Atlantic markets.”

In addition to Pinnacle, other notable deals announced this month include:

  • The Charter Apartments, a 403-unit apartment community in Irvine, Calif. acquired by Irvine-based Western National Group

  • The Resort at Pembroke, a 1,520-unit garden-style apartment community in Pembroke Pines, Fla., acquired by CB Richard Ellis Investors’ Multi-Housing Group via the The CB Richard Ellis Strategic Partners U.S. Value 5 fund

  • $109.5 million in debt acquisitions made by Chicago-based Waterton Residential, including mortgages secured by the Exchange at Brier Creek, a 274-unit property in Raleigh, N.C.; Skyline Terrace Apartments, a 139-unit property in Burlingame, Calif.; Waterstone Corona Pointe Apartments, a 628-unit property in Corona, Calif.; and Copper Canyon Apartments, a 296-unit property in Riverside, Calif.

  • Creekside Meadows, a community of 628 apartments located in Tustin, Calif., acquired for $98.5 million by Alexandria, Va.-based AvalonBay via the AvalonBay Value Added Fund II

  • Parrot’s Landing, , a 560-unit community in North Lauderdale, Fla., acquired by Dallas-based Behringer Harvard via the Behringer Harvard Opportunity REIT II.

Parrot’s Landing, , a 560-unit community in North Lauderdale, Fla. acquired by Dallas, Tex.-based Behringer Harvard via the Behringer Harvard Opportunity REIT II.
Credit: Behringer Harvard Parrot’s Landing, , a 560-unit community in North Lauderdale, Fla. acquired by Dallas, Tex.-based Behringer Harvard via the Behringer Harvard Opportunity REIT II.

“The economic recovery is still fragile and in an early stage,” says Behringer Harvard chief administrative officer Jason Mattox. “However, multifamily transaction volume and sellers motivated by anecdotal transaction information appear to be increasing. Many researchers believe that increased multifamily product coming to market may push cap rates higher, despite extremely attractive available financing. Increased supply and potentially increasing interest rates could uncover an even more attractive buying environment in this cycle.” 

According to the Marcus & Millichap report, a significant amount of capital previously earmarked for distressed deals is now targeting stabilized assets, and competition for deals has indeed increased, with cap rates beginning to contract for higher quality properties. On average, cap rates dropped 10 basis points this year to 7.3 percent, the report notes, while per-unit prices rose 9 percent to $83,600. Year to date through the second quarter, sales of apartment properties rose to $9.6 billion, up 69.9 percent from the first half of 2009, according to New York-based research firm Real Capital Analytics (RCA). Based on the number of properties sold (534 through the first half of the year), RCA says increases have been more modest, with only a 16.8 percent boost in transaction volume over 2009.

“At the heart of all of this activity is a flight to quality,” Harrelson says. “Large transactions such as Shorewood were once dominated by only the public companies. That the spread between expectations of seller and buyers has narrowed somewhat is reflective of the amount of capital seeking high-quality investments, and these desirable assets are now being sought by both public and private firms in increasingly high numbers.”