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Does the Rising 10-Year Treasury Mean Apt Sales are More Likely?

Apartment Sales

Would-be buyers hope that the 10-year treasury’s recent surge above 3 percent could signal a change in the market.

Last week the 10-year U.S. Treasury note broke above 3 percent for the first time in four years. While it fell back below the threshold on Thursday, apartment owners, many of whom are starved for buying opportunities, took notice.

“The 10-year got to 3 percent today; that was a big psychological threshold,” David Schwartz, CEO and Chairman of Waterton said on April 24. “You wonder if owners who have owned something for a while might say now is the time to look to sell because they are concerned, at some point, the rate may move to a level that will causes cap rates to go up.”

Matt Ferrari, Managing Director of Acquisitions of the East Coast for TruAmerica Multifamily, also sees that the 10-year breaking 3 percent could have a psychological impact.

“It could prompt sellers who have been on the fence to list their properties if they think the [10-year note] is a sign that longer-term rates will continue to move higher, cutting into lender proceeds and increasing debt service for potential buyers,” Ferrari says.

There could be other positive signals for the apartment business as a result of the increase in treasuries.

“At the same time, higher interest rates could be a sign that the market views long-term economic growth in a positive light,” Ferrari says. “Apartments have had outsized rent growth despite lengthy but lethargic economic growth experienced this cycle.”

If the for-sale market opens up, it will not solely be because of rising interest rates.

“We have heard that there will be a lot more apartment product hitting the market because sellers will want to strike while the iron is hot,” says Schwartz. “People may want to sell now because there is a lot of capital.”

The 10-year’s movement might affect pricing. Doug Root, Co-Founder and Managing Partner of Blackfin Real Estate Investors, has not seen any effects yet.

“Given the strong demand and rising interest-rate environment, it seems like it would prompt groups to take some chips off the table. I have seen deal-volume let up to start the second quarter, but I think that will change. We will then see a lot of product hit the market in May and June when the leasing season is in full swing. Potential investors will be able to see strong financials,” Root says.

If more apartments come to market, no one will be happier than Schwartz, who has “a lot of dry powder” at his disposal after just closing a $920 million multifamily fund.

“Now that we have closed the fund, we have to try to invest it,” Schwartz says. “This means we are busy doing a lot of nothing -- throwing a lot of dust in the air,” Schwartz says. “We are scouring the country looking for opportunities.”