Dive Brief:

• After dropping 64% year over year in Q1, apartment sales fell 74% YOY in April to $7.1 billion, according to a report that data firm MSCI Real Assets shared with Multifamily Dive.
• The declines hit all multifamily groups equally. Individual asset and portfolio sales dropped around 75% each. And, both garden and mid- and high-rise sales fell by around 75%. Garden cap rates averaged 4.8% over the last 12 months, which was the same as a year ago. Mid- and high-rise cap rates dropped 10 basis points to 4.7%.
• The RCA Commercial Property Price Indices (CPPI), which measure values, fell 12.1% from a year earlier. Prices fell 17.1% from March, which was an improvement compared to the average monthly drop of 25% from November 2022 to January 2023.

Dive Insight:

Despite the sales declines, MSCI pointed out that multifamily remains the most liquid of all commercial real estate sectors. In addition, sales still have not bottomed out to the lows seen in April 2020, when only $5.6 billion was sold.

Over the 12 months from April 2022 to April 2023, cap rates sat at 4.8%, while the 10-year U.S. Treasury was at 3.46%. MSCI said the 136 basis point spread left “less meat on the bone for apartment investors.” In 2021, when deal volume was at record highs, that spread was near 360 basis points. 

Swapnil Agarwal, the CEO and founder of Houston-based Nitya Capital, told Multifamily Dive that it’s difficult for buyers to make the math work in this environment. 

“If you're borrowing at 7% or 8% and you're buying a deal that’s at 5% or even 6% cap rates, you're in a negative leverage situation,” he said. “So who is going to do that? Instead of making cash flow, you'll be at a negative cash flow.”

But difficulty getting financing is also playing a role. Agarwal recently sold four properties in Texas but said the transaction market is still generally frozen. 

“The financing is not there,” Agarwal told Multifamily Dive. “The buyers want to buy. But if they can't get financing on their acquisition, then how will they buy?”

When deals do get done, they often involve 1031 exchange buyers or assumable loans, according to Michael Becker, the co-founder and principal of SPI Advisory. The Dallas-based owner recently bought The Bradford, a 264-unit in the Austin suburb of Buda, Texas.

“The institutions are still for the most part on the sidelines,” Becker said. “They're not buying right now. So private middle market type of buyers and some 1031 buyers are the bulk of the participants in the marketplace right now.”

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