Multifamily prices drop more than other CRE sectors

Dive Brief:

Apartment prices fell 10.3% year over year in March and 1.9% from February, marking one of the largest declines among all commercial real estate asset classes, according to a report that data firm MSCI Real Assets shared with Multifamily Dive.
In the first quarter, apartment sales fell 64% year over year to $25.4 billion, though MSCI notes the dropoff came after sales reached a record high of $71.3 billion in Q1 2022 — $30 billion more than the next-highest Q1 on record in 2020.
While pricing and sales fell, cap rates landed at 5.0% in Q1 — a 50 basis point increase from the record lows in Q1 2022. Mid- and high-rise cap rates increased 60 bps, while those for garden-style properties rose 50 bps as both segments hit 5.0%.

Dive Insight:

In its report, MSCI pointed out that sales volume may be returning to the levels seen before the COVID-19 pandemic. From 2005 through 2019, deal volume averaged $23.3 billion — less than $2 billion below the number in Q1 2023.

Volume for mid- and high-rise properties fell 61%, while it dropped 66% for garden assets. For individual asset sales, volume declined 65% for garden apartments versus 67% for mid- and high-rise properties.

Despite the sales slowdown, a lot of money is poised to buy apartments if the price is right. “There are so many investors on the sidelines waiting to pounce on opportunities,” according to Houston-based Three Pillars CEO Gautam Goyal.

When Minot, South Dakota-based REIT Centerspace sold nine midwestern communities for $144 million, there was no shortage of interested buyers for both single assets and portfolios, according to incoming Centerspace CEO Anne Olson.

“There's still a huge appetite for individual owners to buy one building, particularly if it's under $10 million or $15 million,” Olson said. “Those are long-term owners that aren't necessarily dissuaded by the sudden spike in interest rates.”

Interest was also high for multiple assets. “We had a lot of tours,” Olson said. “About a third of those tours put in really serious offers. We were able to have three or four people in the best and final [offer stage]. So from a volume of buyers’ perspective, I think our brokers were happy, and we were happy.”

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