After a schizophrenic year for apartment transactions in 2008, everyone knew 2009 would be down. The question was: How much? Sales data from Real Capital Analytics, a New York-based research firm that focuses on the capital investment markets for commercial real estate, reported that sales fell about 65 percent from the year before.

After $37.7 billion of apartments sold in 2008, $13.9 billion worth of apartments sold in 2009. That’s an even steeper drop, 85 percent, than the record high of $100 billion in 2007 (2006 was second place with $92 billion).

But compared to the office sector, which fell 71.3 percent (compared to 74.5 percent the year before) from 2008 to 2009, multifamily didn’t fair that poorly. “It’s a little more than I expected,” says Ben Thypin, senior market analyst for RCA. “Multifamily is a little unique right now. The GSEs are helping a lot more deals get financed than might have otherwise occurred.”

Things actually could have been worse in the multifamily sector, but sales started to rise in the third and fourth quarters. Cindy Cooke, a senior vice president in the Phoenix office of Colliers International, a multifamily broker, says most deals earlier in the year were “quiet” that weren’t advertised. But by the end of the year, the bid/ask spread narrowed, and more than 20 buyers appeared on most deals. Her clients felt they had to be on the market to get the best price.

“We did see a huge shift happen around August and it gained momentum in October, November, and December,” Cooke says. “We definitely saw a big shift occurring in the market nationwide.”

Looking Ahead
Fueling that shift was the capital that had been hoarded over the past couple of years got antsy. Investors felt that the risk of further depreciation had generally passed and saw the potential for a rental market with little new supply beyond 2010. Unfortunately, that capital is still seeking distressed assets, which haven’t hit the market. And, seeing better days ahead, many owners would prefer to hold right now.

“There’s such a malaise in the market that nobody wanted to bring a property on the market unless they had to,” says Peter Donovan, senior managing director of Los Angeles-based CB Richard Ellis' Multi-Housing Group. “Most of the sales that we saw were for liquidity purposes, life insurance companies who needed liquidity or REITs who wanted liquidity or wanted to sell out of certain markets. Anybody who bought in the last three years didn’t feel they could get what they paid, let alone any kind of profit, so they just weren’t motivated to sell.”

Donovan, who says he’s seeing an all-time high in buyer’s appetite for apartments, isn’t seeing a rush of deals so far in 2010. “When we talk institutional clients, none of them thinks there’s a compelling reason to sell,” he says. “They all think NOI and valuations will go up over the next couple years. If they have it appropriately financed, they’ll wait it out.”