Will Rising Rates Keep Onsite Teams in Place?
Rates are rising as the end-of-year apartment sales process begins. Will sellers have to adjust their prices to find buyers. Or will they refinance, keeping property staff in place.
Traditionally, September and October are big months for apartment owners who want to sell their assets before the end of the year.
“There is a big push [to market properties] after Labor Day and offers are being collected through October,” says Doug Root, Co-Founder and Managing Partner of Blackfin.
There’s a new complication this year though. Yields on the 10-year Treasury jumped from 2.8 percent on Aug. 22 to 3.2 percent on Oct. 10, sending shock waves through the stock market, leading Root and others to wonder how these shifts will impact pricing during the busiest sales time of the year.
“It will be interesting to see what happens as a lot of bids are being collected over the next couple of weeks,” Root says. “The run up happened as they just started the marketing process. We should know more in the next four to six weeks.”
So far, Camden Chairman and CEO Ric Campo does not see investors changing their pricing expectations at the top end of the market.
“At the margins, some high-leverage buyers who did not have rates locked in are having to adapt,” he says. “Most institutional buyers don’t use debt or have lower debt levels and are not impacted.”
For some buyers and sellers, these rate increases create opportunities.
“We are getting more inbound calls about deals where we finished second or third in the bidding a couple of months ago and the brokers are asking us if we are still interested after the original buyer drops the contract,” says Bobby Lee, President and COO of JRK Property Holdings.
Lee says this provides an opportunity to buy assets in these “choppy” markets.
“Having fully discretionary equity in a market like this can be a big differentiator to sellers,” he says.
Steve Hallsey, Managing Director at Wood Partners, a merchant developer that is putting new communities out on the market, also sees buyer pools thinning.
“We’re having fewer and fewer bids on our assets,” he says. “We are finding the buyer pool much shallower than in years past. The good thing is, this is not bothering our joint venture partners as far as expected IRRs [Internal Rates of Return].”
Though he sees a lot of equity in the market, fewer bidders chasing certain deals is also a theme for Matt Ferrari, Senior Managing Director of Acquisitions for TruAmerica Multifamily
“The best real estate still has a strong feeding frenzy but there seem to be less groups at the very end when trying to win a deal,” Ferrari says. “I would not be surprised if this is a turning point where we see some modest adjustments in pricing and cap rates.”
Madison Marceau, President of Acquisitions for Kairoi Residential, still generally sees pricing flat, if not up slightly, in the Southeast and Denver, the markets he covers. But he also thinks there are some shifts occurring in the market.
“What I see changing is the bid lists are getting thinner,” Marceau says. “Instead of five parties at the top level of pricing it is now two or three parties. Debt proceeds are also coming down as the 10-year moves up. Additionally, there are many development projects that are being refinanced instead of sold.”
If more owners decide to refinance and keep their apartment communities, Marceau thinks it could keep more onsite teams in place by reducing the churn that can occur when there is a sale.
“Refinancing is good news for operations—and more stability for the onsite teams,” he says.