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Apartment Sales Flat in Q1

By Les Shaver

Apartment deal volume came in at $36.4 billion, which was only a 1 percent increase compared to Q1 2018, according to Real Capital Analytics (RCA).

While Q1 deal volume stalled compared to last year, the apartment market still posted the second most active first quarter ever (behind Q1 2016). RCA considers any growth at all a positive for the apartments.

“The paucity of growth for the apartment sector in Q1’19 was in some respects a positive sign,” RCA writes in its U.S. Capital Trends report for the apartment market. “Deal activity for commercial property overall fell in the face of turmoil in the financial markets. So, the limited growth for the apartment sector is a case of outperformance relative to other property types.”

Portfolio sales drove volume in the quarter while single-asset sales struggled. Portfolio sales in Texas represented 35 percent of deal volume.

Matt Ferrari, Co-Chief Investment Officer, Head of Acquisitions and East Coast Asset Management for TruAmerica Multifamily, says he has not seen as many portfolio sales as he saw last year. “The few portfolios that we have seen are certainly smaller and perhaps more regionally focused than a year ago,” he says.

Additionally, there were no entity-level deals (sales of entire organizations) in the quarter. While RCA says it is not unusual to get a quarter without these kinds of deals, they did represent 25 percent of all deal volume in 2018. Volume in the mid- and high-rise segment grew 7 percent, while sales in the garden segment fell 2 percent.

Prices continued to increase in Q1 as RCA CPPI for the apartment sector rose 7.3-percent YOY. As values rose, cap rates continued to decline, falling 20 basis points to 5.2 percent.

Competition for assets drives price increases. While Ferrari says competition for deals abated in Q4 and early in Q1, things soon heated up again.

“Since rates have dropped, it has been ultra-competitive to win deals, which seems to be a similar dynamic at the same time last year,” Ferrari says.

Others agree. “It is as competitive as ever,” says Doug Root, Co-Founder and Managing Partner of Blackfin Real Estate Investors.

Deals remain available if buyers know where to look.

“There are still good suburban value-add opportunities available in many of our target markets and we continue to be bullish on the space and our investment thesis,” Ferrari says. “There also continues to be a healthy amount of product in many of our markets and our goal is to still buy $900 million to $1 billion of apartments this year if we continue to find opportunities that we like.”