Two RealPage posts offer an interesting take on the multifamily market. One notes that in the first quarter, the five largest apartment transactions were on the East Coast and West Coast. The other notes the Midwest apartment markets have demonstrated the greatest resiliency.
The latter post, written by Kim O’Brien, highlights the Midwest apartment markets’ unique ability to shine during times when the rest of the nation is lagging.
In 2020, when the nation’s housing market was hit hard by the COVID-19 pandemic, the Midwest outperformed the flailing Gateway markets and stayed relatively in line with the Sun Belt, she writes. The following year “the Sun Belt market performance really took off, with new lease trade-out peaking at over 20%, leaving the Midwest to its slow-and-steady pace around the 10% mark. When the Gateway performance bounced back and hit a performance peak near 19% in 2022, the Midwest continued to log a solid – but less flashy – expansion, closer to 16%.”
Now we come to this year and moderation has become widespread across the U.S. Meanwhile, the Midwest performance has snuck ahead of the Sun Belt and Gateway markets. “New leases are now signing for almost 7% more than the previous lease in the Midwest, a few ticks ahead of the Gateway and Sun Belt,” according to O’Brien.
Yet the major deals are occurring elsewhere. This is doubly significant because apartment sales, like the rest of the commercial real estate market, took a significant hit in the first quarter, dropping 64% year over year. RealPage’s Charlotte Wheeler writes that cap rates for transactions in Q1 were up 40 basis points year-over-year but remained at historic lows, averaging 5.1%.
Where Prices Might be Heading
Speaking last month at the National Multifamily Housing Council Research forum, Jim Costello, chief economist for MSCI Real Assets, said the price-gap expectation between buyers and sellers is widening and is back to where it was in 2020.
“It is saying that from current price levels, you need about another 10% decline in apartment prices to be able to equilibrate buyer and seller interest in this,” Costello said.
“So, it’s an interesting situation of buyers and sellers still staring at each other across the table and not willing to move so much yet.”
The Top Five Q1 Deals
With that dismal prediction in mind, as well as O’Brien’s observations about the Midwest multifamily markets, it is interesting to see where the top deals were in the first quarter.
Southgate Towers was the highest priced transaction in Q1, according to RealPage. Apartment Income Real Estate Investment Trust purchased the 495-unit apartment community in Miami from Gumenick Properties for $241 million or about $487,900 per unit. That per-unit price was the third highest in Q1.
The priciest per-unit transaction was The Lydian, which went for $182 million or roughly $560,200 per unit. The Northwest DC-located community was purchased by Pacific Life. The Lydian is in the Mount Vernon Triangle area and its previous owner was The Wilkes Co. and Quadrangle Development Corp.
San Jose was home to the third-highest sale of the quarter. Griffis Residential bought the Cerano (Griffis South Bay) community in the North San Jose/Milpitas submarket for nearly $154 million or $410,400 per unit. The 373-unit development on Murphy Ranch Road in Milpitas was sold by Fairfield Residential.
Another Washington, D.C., metro area community, The Highgate at The Mile, came in at No. 4 on the list when Blackstone sold the six-story community with 395 units on Jones Branch Drive in McLean for $137 million or $346,800 per unit. The buyer was a joint venture between McLean, VA-based Kettler, and Newport Beach, CA-based Pacific Life.
Fifth on the list was The Eddy, purchased by Tishman Speyer for $135 million, or more than $521,000 per door.
The 17-story tower located along New Street at the East Boston waterfront is East Boston’s largest building. It is within the Chelsea/Revere/Charlestown submarket and was built in 2016. East Boston’s tallest development is LEED Gold certified, with 259 apartments. The seller was The Green Cities Company.
