Apartment Investors Out In Full Force

You would think increasing unemployment, falling rents, and increasing competition from investors putting rental units on the market would have multi-family investors worried, but this has not been the case. We hinted at how hot the market was about a week ago when we posted on deflation, but with plenty of agency debt available, apartments are (relatively) on fire, particularly the nicer stuff.

Effective rents in San Jose fell 8 percent on a year-over-year basis, according to third-quarter data just released by Reis. They fell 5.3 percent in San Francisco and 3.9 percent in Oakland and the East Bay. Effective rents include the cost to landlords of providing tenant perks to promote leasing, including rent reductions and free rent. All three Bay Area markets had among the worst showings in the year of the 79 major metropolitan markets that Reis tracks. San Jose’s decline was the worst in the nation year-over-year, Reis said.

Both valuations and volume are down significantly from the peak, but investors continue to have a huge appetite for the product with top properties attracting dozens of offers. Not really the market we would want to be competing for deals in, but hey if its OPM, why not, right??

[via The Registry]

Similar Posts:

• Apartment Vacancy At 30-Year High; San Jose Leads Rent Declines
• US Office Vacancy At 5-Year High; Rents Plummet
• Surprise: San Francisco Office Rents Are Falling
• Property Tax Appeals: The Impact on Government, Landlord, and Tenants
• Moffett Towers Lands Rambus For 125K SF

Comments

Sam October 9, 2009

I love your blog, but this entry is void of any metrics or backup. What is your source for this? The Registry link goes to your blog, as do other articles repeating what you’re saying.

squarefeet October 9, 2009

fixed the link, thanks.

our post is based on conversations with investors and other brokers and what we’re seeing and hearing out there. A well-located institutional quality apartment asset in Silicon Valley, with a realistic seller (think 6.5-7.5% cap) will see a lot of activity.

As mentioned in the post however, volume is down significantly from previous year’s levels, but still in 2009, RCA numbers show that 2nd quarter volume came in at $2.8B, vs $2B in the first quarter – a 40% rise.

Nick Jevic October 9, 2009

Valuations across all asset classes will revert back to the mean.

Not surprising that quality properties are attracting multiple bidders.

I’d be interested to know how the 6.5% to 7.5% cap rates compared to cap rates 12 to 18 months ago. Also curious on how much equity is required to get those transactions completed.

Leave a comment