Dive Brief:
- Apartment sales continue to fall, but the pace of decline is slowing. After 2023 monthly sales volume regularly fell more than 70%, January 2024’s year-over-year drop was 45% to $4.5 billion, according to a report that data firm MSCI Real Assets shared with Multifamily Dive.
- The pace of sales in January was well below the numbers posted during the month in the pre-COVID-19 years. From January 2015 to 2019, sales averaged $12.8 billion.
- The Real Capital Analytics Commercial Property Price Index for apartments fell 7.9% from January 2023, but the pace of the decline is slowing for prices as well. Last August, prices were falling at an annual rate of 14.1% per month. Overall, values are down 16.3% from the highs seen in 2022.
Dive Insight:
Mid- and high-rise apartments saw the smallest volume decline in January, dropping 25% to $2.3 billion. Garden sales fell 58% to $2.1 billion. Portfolio and entity deals dropped 40% to $1 billion, while single asset sales declined 47% to $3.4 billion.
There are a number of factors that stunted deal flow after the Federal Reserve began raising interest rates in 2022. But one of the most significant issues is the standoff between buyers and sellers, which still persists, according to Alec Brackenridge, chief investment officer at Chicago-based Equity Residential.
“Buyers generally are looking for a 5.5% cap rate, and sellers generally looking for something closer to 5%,” he said on the REIT’s fourth-quarter earnings call last month. “So, not an insurmountable gap at some point, but right now, it's hard to peg things.”
Distressed selling?
Other potential buyers are waiting to see if more motivated sellers begin to put things on the market as loan maturities increase this year. But so far, that type of pain hasn’t materialized.
“We are not seeing significant distress in the system,” said Ben Schall, CEO of Arlington, Virginia-based AvalonBay Communities, on the REIT’s recent fourth-quarter earnings call. “There is the potential wave of maturities that is being highlighted by folks.”
So far, lenders are throwing buyers a lifeline by agreeing to extend loans, according to Schall. But that could change.
“Not all debt providers and equity providers are able to [extend loans],” Schall said. “So that does create the potential for some dislocation. But we're not necessarily seeing its size. I'd say we're preparing to be ready to take advantage of it, but not seeing it at this point.”
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