Is This The Year Large Apartment Portfolios are Sold?
After a misfire in 2017, many industry watchers expect to more ten-plus property portfolios sell in 2018. Find out why (and who is selling).
For apartment buyers who wanted to add a lot of units in a hurry, 2017 was a dud. With a few exceptions (Greystar buying Monogram), there were not a lot of opportunities to add 500-plus apartments to their portfolio.
“Last year, there was a lot of discussions about portfolios or pools of offerings that generally did not materialize,” says Brian McAuliffe, President of Institutional Properties and leader of CBRE’s Multifamily Division. “There were a couple of discussions about big deals, but not to the extent that the pipelines and review process would have warranted in the first half of the year. In 2018, that has changed. We expect that Q2 will have a significant increase in the number of portfolio opportunities [for sale]. This will create more opportunities for investors compared to 2017.”
While those portfolios have not closed yet (which means they aren’t reported in RCA’s report), observers say there are more portfolios for sale listed, including a 3,800-unit portfolio being marketed by brokerage firm AVR and a 3,374-unit package from Greystar.
“So far [through April], I have seen four or five large portfolios hit the market,” says James A. Bloomingdale, Senior Vice President and Head of Acquisitions at JRK Investors.
“I’m not sure how it ultimately will compare to last year, that is a lot of large portfolios hitting the market.”
The story is the same on the East Coast.
“There seems to be many larger portfolios for sale this year,” says Matt Ferrari, Managing Director of Acquisitions on the East Coast for TruAmerica Multifamily. “Perhaps this is to take advantage of all of the equity out there chasing opportunities and wanting to place very large equity checks in one fell swoop.”
The question is why now -- after having seen the misfire last year? Specific reasons vary, but most point to where the industry is in the cycle. Marc deBaptiste, Vice Chairman at ARA, A Newmark Company, who has two Florida portfolios already under contract, has a theory that explains why there will be will see more activity this year in the core-plus and value-add space.
“Private equity groups and other institutional players believe that this is an ideal time to liquidate assets that they accumulated during the past five years,” deBaptiste says. “Cap rates are still favorable, and so is debt and equity.”
Blackfin Co-founder and Managing Partner Doug Root says that a fear of being last-to-market is forcing some sellers to put apartments on the market.
“I suspect that the number of portfolio sales will increase as groups anticipate it being late in the cycle, and they are looking to capitalize on the strong buyer demand before they might lose their opportunity,” Root says.
Others say it is rising interest rates that will prompt would-be sellers to end their indecisiveness and start selling their portfolios.
“If cap rates are going to expand with rising interest rates, I guess it means that sellers are trying to get their product out there early, before we see movement in pricing,” Ferrari says.