A recent report from New York–based commercial real estate research firm Real Capital Analytics (RCA) reveals that apartment sales figures closed out 2011 on a positive note. The firm’s “2011 Year in Review” report shows that the fourth quarter of 2011 netted $16.6 billion in sales, the highest quarterly volume racked up since 2007. This marks a 16 percent increase from the previous quarter and a 24 percent bump from fourth-quarter apartment sales in 2010. Among the more optimistic data revealed in the report was the rebound of garden-sector sales.
“While both the garden and mid-/high-rise sectors started losing momentum midyear, garden finished stronger and had an overall better year than mid-/high-rise,” says RCA’s director of market analysis, Ben Thypin. Garden properties ended up 47 percent ahead of the 2010 figures, and it appears that the sales momentum experienced in the fourth quarter will carry over into the first quarter this year. “Given the stable cap rate environment for garden properties, compared to sinking caps in mid-/high-rise, that trend is likely to continue in 2012,” projects Thypin.
Mid-/high-rise transaction volume experienced a lull in the fourth quarter and was down year-over-year. The RCA report cites “institutional and REIT demand for Class A garden properties” as the reason cap rates are nearing peak levels in the top 40 metros.
Manhattan apartment properties represented the largest drop in yield and averaged a 4.5 percent cap rate for the year. Tertiary and small markets, however, held at high percentages.
Certain metropolitan markets fared rather well. Bright spots include places such as Chicago, Denver, and the Virginia suburbs of Washington, D.C., which were wildly active markets last year. In fact, D.C.’s Virginia suburbs represent the No. 3 apartment market in 2011, up 98 percent year-over-year. The Chicago market came in at No. 5 in the United States in apartment sales, up 140 percent from the previous year. But perhaps most impressive is Denver’s 170 percent jump in sales volume. According to CB Richard Ellis’s Peter Donovan, senior managing director for the multi-housing group and capital markets, “Denver’s Zeff family portfolio, containing 29 multifamily apartment properties and valued at around $900 million, has attracted a lot of private investors to the area.”
As for the D.C. metro and Chicago regions, “heightened investor interest in brand-new, A-quality, multifamily property has led the markets to come back sooner and stronger following the last downturn,” Donovan adds.
New reports of distressed properties were lower in the fourth quarter than in all of 2011. Additionally, the percentage of sales made up by distressed apartments in the fourth quarter fell yet again. The figure was less than half of what it was at the end of 2010.
So by adding the robust $16.6 billion in sales raked in during the fourth quarter, the final tally for 2011 apartment sales comes in at $53.9 billion. This represents a 49 percent increase from 2010 and is a good sign of things to come in 2012.