Dive Brief:
- Despite widespread reports of rising interest rates squashing apartment deals, apartment transaction volume still held up in the second quarter of 2022, according to a report shared with Multifamily Dive by MSCI Real Assets, a firm that provides tools and services for the global investment community.
- Overall sales grew 42% year over year in the second quarter to $86.3 billion. Large portfolio and entity-level sales jumped 139% to power the growth. Sales of individual assets rose 22% year over year.
- Prices increased during the second quarter with the RCA Commercial Property Price Indices (CPPI), which measures the value of commercial property, rising 23.7% year over year. From the first to second quarters, they rose 20.2%.
Dive Insight:
Pricing is cooling in some types of apartment properties. For instance, cap rates for mid- and high-rise apartments remained at 4.4% over recent quarters, according to The RCA Hedonic Series, research focusing on cap rate and pricing metrics. But cap rates for garden apartments have fallen 50 basis points over the past year to 4.3%.
“Investor preference for garden apartments is simply greater than that for the mid- and high-rise assets that were so popular over the decade leading up to the pandemic,” according to MSCI.
That buyer preference showed up in second-quarter deal volume with investors buying 57.4 billion — a 39% increase year over year. Sales of mid- and high-rise assets rose 50% year over year, though most of these trades were in smaller deals rather than large portfolios.
Investors continued to prefer secondary and tertiary markets rather than the major six coastal metros — New York; Boston; Washington D.C.; Los Angeles; San Francisco and Seattle.
The Sun Belt has been the beneficiary of the investment migration away from the coasts.
Companies like Manhattan Beach, California-based Magma Equities have deployed dollars to markets like the Carolinas, Texas and Tennessee.
Although Magma Director of Asset Management Chris Herrlinger says things have slowed down on the transaction market over the past couple of months and it is more challenging to make deals pencil out, his firm feels comfortable making deals in the Sun Belt.
“We feel very strongly about the long-term prospects of Raleigh, North Carolina, Charlotte, North Carolina and Dallas,” Herrlinger told Multifamily Dive. “We feel like we see a lot of the opportunities and we're able to unearth deals that might not be available to others.”
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