FOR VETERAN BROKER Cindy Cooke, the past few years have been tough. Since the credit crunch, the senior vice president of multifamily investments at Boston-based Colliers International has seen deals come through in mere drips and drabs. But she senses a change coming—and that's due in large part to the size of deals on the sales block today.

Cooke has one undisclosed seller offering a seven-property, 1,566-unit deal priced at $49.9 million, as well as another seller placing a five-property, 1,347-unit deal valued at $41.5 million on the block. “People are putting together portfolios and [bringing] larger properties to the marketplace,” she says.

Unfortunately, Cooke may be the only one certain of this trend right now. Sure, a few recent large deals—including Chicago-based Equity Residential 's early February purchase of three New York assets from New York-based Macklowe Properties —have generated speculation of a return to business as usual. But some say the recent spike in activity is simply a sign of more distress eking out (even Macklowe needed the sale to fund a development project). The bottom line: Whether it's a sign of distress or an indication of a turnaround, the industry can expect that larger portfolio transactions are on their way.

Signs of Life

Back in the fall of 2008, when financing became more difficult to secure and buyers and sellers lost grasp of accurate pricing, the multifamily sales market ground to a halt. The usual buyers disappeared, leaving smaller, private owners in the market.

“The buyer type [for those assets] has been more mom-and-pop, and they don't have that type of money,” says David K. Oelfk e , a founding principal in the Central region for Atlanta-based A partment Realty Advisors (ARA). “So they have to do smaller deals. Back when GE [Norwalk, Conn.-based GE Capital Real Estate ] and [New York-based] Lehman Bros. were providing sponsorship, [the size of the deal] was more unlimited. The bigger the deal, the more interest they had.”

And sellers, unless they were distressed, were unlikely to put blocks of properties on the market. “The only people who can make deals are REITs and pension funds, and they've mainly been doing one-off deals because they want to move out of a market or use the money to buy something newer,” says Jeff Hawks , a principal in the Denver office of ARA.

That's certainly true for Equity. In its fourth-quarter conference call, the REIT said it is looking to sell portfolios in North Carolina and in “non-Boston” New England in order to generate funds for new deals.

Slowly but surely, though, brokers are starting to see a thaw in the market. Cooke says the trend is being driven by the seller's interest in financing deals, rising (or at least stabilized) prices in many markets, and the growing crowd of equity players out there in need of a place to put their money.

“I think you'll start seeing transactions in multiple cities related to the same owner,” Cooke says. “Someone who is an investor in Phoenix in 2006 and 2007 who then went into Portland, Seattle, and Denver. You'll see that type of larger portfolio coming available.”

Mixed Data

Real Capital Analytics (RCA), a New York-based commercial real estate research firm, points to Great Atlantic Management , an owner based in Virginia Beach, Va., who RCA says had a massive, 19-property, 4,000-unit portfolio of Virginia properties on the market at press time.

“I would imagine someone like Great Atlantic is trying to raise cash to fund acquisitions,” says Ben Carlos Thypin , senior market analyst with RCA.

But Thypin isn't necessarily ready to declare just yet that there's a thaw in portfolio offerings. As of press time, neither RCA nor New York-based Reis —companies that track apartment transactions—had seen enough large deal activity to declare a trend.

“As for portfolios coming to market, anecdotally, I would have to agree, but I think we need to wait until the end of the quarter to give out any definitive numbers,” Thypin says.

Ryan Severino , an economist with Reis, agrees. “While we don't have any hard numbers, we are starting to see more transactions at the portfolio level,” he says.

Distress in Bulk

While there may be some voluntary bulk sellers here or there, they're still the exception rather than the rule. More commonplace is what ARA's Hawks is doing. He just put three bank properties on the market in Denver. “That's the first portfolio coming out of Denver,” he says. “There's been a couple in Arizona, but there's just not a lot of product.”

Others harbor more doubt that buyers will ultimately see anything but distressed portfolios in the near future. “I'm not sure we see too many large deals actually coming to market, to be honest,” says Nicholas Michael Ingle , director of capital markets for Hendricks & Partners , a brokerage firm in Phoenix.

And for those owners secure in their loans and capitalization, there's little interest to sell anything, much less a portfolio.

“In our experience talking to our clients, there is very little interest to sell period, portfolio or not,” says Peter Donovan , senior managing director of Los Angeles-based CB Richard Ellis ' Multi- Housing Group. “They're all waiting for a better time. If they don't have a gun to their heads because of loan maturities or liquidity needs, their inclination is not to sell. They believe there will be a pick-up in rents in 2012 or 2011.”

Hawks agrees but could potentially see older owners who want to exit the space use reduced cap rates to shelve their multi-property assets.

“I think the vast majority will wait, but some guys may be able to sell today and get a good price,” he says.


Here's a look at three notable portfolio sales, as of press time.

1. EQR's Macklowe Buys: In early February, Chicago-based Equity Residential bought three New York towers from Macklowe Properties. Together, the properties include 910 units, 23,339 square feet of retail space, and 50,000 square feet of parking. All told, the properties cost Equity $475 million, or $470,000 per apartment unit.

2. The Bethany Assets: Standard Austin Fund , a private equity group, bought 5,000 units across 16 properties for $400 million from the Bethany Group multifamily portfolios coming out of Chapter 11. The equity stake in the properties, which are located in Texas and Maryland, went to Standard Austin, while the original lenders stayed in the deal.

3. The Corus Assets: An investment consortium managed by Connecticut's Starwood Capital Group bought a 40 percent stake in a company that will hold an estimated $4.5 billion in troubled assets that the federal government seized from Chicagobased Corus Bank. The portfolio held 112 construction loans for 102 buildings, including 14 multifamily complexes as well as 79 luxury condominium buildings with more than 12,000 units.


Pay attention to the details when trading a distressed portfolio.

THESE DAYS, MOST portfolio deals on the market offer distressed assets . But Peter Donovan, senior managing director of Los Angeles-based CB Richard Ellis' Multi-Housing Group, says it's a mistake to think that a bank will simply bundle up apartment properties and sell them as REOs. In fact, pure lenders and the special servicers who handle bad CMBS loans may very well have different agendas.

“I don't know if banks want to sell a portfolio, but a CMBS lender may want to do that because of ease of execution,” Donovan says. “It will depend on a group of assets and where they're located as to whether that's the best strategy.”

Real estate basics such as location and asset type will also play a role. “Our experience has been that if it's all in one city with similar quality and types of properties, you'll get a better portfolio execution because it will appeal to one buyer,” Donovan says. “If it's a scattered portfolio across different geographies, different sizes, and different types of quality, a portfolio execution doesn't maximize your value.”

So far, though, most of the distressed portfolio offerings are lower-quality assets with maintenance issues. David K. Oelfke, a founding principal in Atlantabased Apartment Realty Advisors' Central region, says it's hard to bundle those kinds of deals.

“Most of what we're doing are the CMBS [Class] B and C stuff that was overleveraged,” Oelfke says. “Some are portfolios, but we found for that pricing, it's better to get that stuff sold individually versus selling a portfolio. If it's nicer, it might price out better as a portfolio. But there's not much nice real estate coming out.”