After more than a year in the doldrums, the multifamily transaction market began to come back around a year ago. For most of the past year, at least, asset values at top of the market properties in good locations, have been in full recovery. In fact, with a dearth of high quality products on the market, some have wondered if those transactions that are happening, are occurring at unsustainable prices.

That’s something Dick Kadish addressed head on in a panel on setting asset values at the MFE Conference last week in Las Vegas. He joked that when he called fellow panelist Matthew Lawton, executive managing director at HFF, on some properties in the hot Washington, D.C., market that he couldn’t get a call back.

One person who definitely has had a problem getting call backs in the past year was panelist Mark Alfieri, executive vice president and chief operating officer of Dallas-based Behringer Harvard Multifamily REIT, which has been one of the busiest buyers on the market in the past year. “Last year was what we were looking for,” he said.

Alfieri argues that the firm did get some good deals. In 2009, it was getting cap rates above seven in Houston, above six in Northern California, and seven in Los Angeles. And, Alfieri said he bought at seven cap rate in Marina Del Rey, Calif., last year. Now those deals are going four cap rates in the fours.

“This year, the world changed,” Alfieri said. “Institutional capital and the REITs came into the market and it all changed.”

Taking Advantage of the Market
There have been a number of beneficiaries of the valuation improvements in the past year. For instance, Martin Cropp, managing director at Principal Global Investors, said that he had seen some flipping going on recently with people buying a property and selling it 60 days later at a price 10 or 15 percent higher than they bought it for. He also said the 15 percent improvements in valuations have helped some owners, who had lost 30 to 40 percent, escape their troubled deals.

“That [the increase in valuation] has given them the ability to get out of these deals,” he said. “Some people have now done these transactions without writing a big check.”

Brad Cribbins, senior vice president of the Mountain/Southwest region for Phoenix-based Alliance Residential said that his banking and joint venture relationships have helped him acquire under the radar deals. Without those contacts, the company probably wouldn’t have jumped in the frenzied market.

“We’re trying to stay a away from the 4s and 5s [percent cap rates] and go to a price per pound,” he said.

Asset values could be facing yet another adjustment in the future, as more product comes on the market. Lawton commented that New York-based Real Capital Analytics reported that $9 billion worth of assets came on the market in the past 90 days.

Even with decreasing cap rates, Aliferi thinks there could be some value in these assets. “You still have the opportunity to buy into a market that will increase 20 to 25 percent in the next few years,” he said.