Dive Brief:

• Apartment deal volume plummeted 26% year over year to $23 billion in August as increasing interest rates wreaked havoc on the market, according to real estate data and analytics firm MSCI.
• Though bad, August’s total would have been even worse if Blackstone’s $13 billion deal for REIT American Campus Communities student housing in Austin, Texas, hadn’t closed during the month.
• Despite much chatter in the market that cap rates are rising over the last couple of months, MSCI says they fell 30 basis points YOY to an average of 4.7%. Cap rates for garden apartments fell 30 basis points, while high-rise cap rates dropped 10 basis points. Values continued to rise, with the RCA Commercial Property Price Indices increasing 17.1% YOY. However, there was no growth in prices between July and August.

Dive Insight:

Sales of individual apartments, typically an indicator of health in the market, fell 49% YOY and 22% from July to August. This is significant because investors are underwriting one property at a time based on the health of that asset. 

There was one culprit behind the shaky August results. “The increase in interest rates and subsequent spike in apartment mortgage rates has generated uncertainty in the marketplace,” according to MSCI.

The cost of debt has risen across the country, affecting apartment owners of all asset classes.

“The reality is that from an acquisition standpoint, the increase in the cost of debt is impacting everyone,” Juan Jacobus, Houston-based Hines’ director for South Florida who recently closed a large deal, told Multifamily Dive. “It doesn't matter if you're in Miami, Seattle or Texas.”

Even in the hottest markets in the country — like Florida —things slowed dramatically in the late summer months. 

“There definitely was a slowdown during the summer in terms of new deals being brought to market,” Jacobus said. “I think there were a lot of people waiting to see what happens after Labor Day with properties that were slated to be marketed.”

That late summer pause in bringing properties to market should show up in MSCI’s early fall numbers, since it typically takes a couple of months for deals to close. Although Jacobus is optimistic that things will pick up in the fall, others are doubtful.

“I don’t believe any of this is likely to resolve itself in the immediate future,” said Greg Curci, executive vice president of operations at King of Prussia, Pennsylvania-based Morgan Properties. “I think it’s more reasonable to expect underwriting clarity and transaction volume to pick up momentum in the spring or summer of 2023.”

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