- Apartment sales have been falling by more than 60% each month for a year now. That trend accelerated in July as transaction volume plummeted 76% year over year to $6 billion, according to a report that data firm MSCI Real Assets shared with Multifamily Dive.
- As liquidity has dried up, cap rates have risen 30 basis points YOY to 5% in July, according to MSCI. For mid- and high-rise apartments, they increased 40 bps to hit 4.9%, while they ticked up 30 bps to 5.0% for garden apartments.
- Sales declines were fairly even across asset classes. Garden volume fell 76% to $3.8 billion, while mid- and high-rise transactions dropped 75% to $2.2 billion, according to MSCI. Single asset trades dropped 74% to $5.2 billion, while portfolio and entity deals plummeted 82% to $800 million.
The declines posted in July didn’t just fall off from 2021 and 2022, when there was excess liquidity in the apartment market. Sales also were 53% below the $12.7 billion average in the five years before the COVID-19 pandemic, according to MSCI.
Although there may not be a lot of money currently pursuing apartment deals, observers see capital waiting to pounce when deals become attractive.
“If you look at the stats around how much money has been raised over the past year or two, it's actually at record highs,” Mai Zhang, senior vice president of asset management for the Boston-based The Davis Cos., told Multifamily Dive. “Blackstone just raised a $30 billion fund. And that's kind of similar across all the real estate managers. But then, at the same time, you're dealing with the issues around financing and making deals pencil out.”
On the West Coast, transaction volume fell 55% and cap rates were in the mid-4% to low-5% range for institutional-quality assets, Palo Alto- California-based Essex Property Trust’s CEO Angela Kleiman said on the REIT’s second-quarter earnings call.
“Interest from a healthy group of buyers ranges from local syndicators to large institutional and foreign investors,” Kleiman said. “As expected, leverage buyers remain largely on the sidelines, waiting for more clarity on interest rates.”
Interest rates aren’t the only factor delaying sales. In addition to higher debt costs, plateauing rents have made it hard to pin down values, Equity Residential CEO Mark Parrell said on the Chicago-based REIT’s second-quarter conference call.
“If you really were to peg a cap rate, it's almost on a per-unit, per-square-foot basis kind of conversation at the moment, but I think that's going to shift given the amount of capital on the sidelines and given our hope that operating results will improve over the next 12 months,” Parrell said.
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