Dive Brief:
- Apartment sales volume rose 7% year over year to $7.5 billion in February, as the market ended a streak of four straight months of high double-digit increases, according to a report that data firm MSCI Real Assets shared with Multifamily Dive.
- Cap rates rose 20 basis points compared to February 2024, averaging 5.6% for the month. However, MSCI noted that most of that increase can be traced to the first half of 2024. Since July, rates have basically remained flat.
- Garden apartment cap rates rose 20 bps in February from a year ago to 5.6%, while mid- and high-rise apartment cap rates rose 10 bps to 5.4%. Mid- and high-rise apartment sales increased 32% from a year earlier, while garden transactions were down 7% YOY.
Dive Insight:
MSCI has traditionally pointed to individual asset sales as the best gauge of buyer interest in apartments. Investors buying one property at a time will underwrite each apartment community individually, while portfolio and entity-level sales are sometimes driven by broader portfolio and relative financing changes.
If that’s true, the apartment sales market may be in a stronger position than overall numbers indicate. Individual asset sales have grown by double digits for five straight months, rising 17% YOY to $6.9 billion in February.
However, the portfolio and entity-level sales category fell 45% YOY to $631 million in February, as no large companywide sales closed during the month. However, more deals should close in coming months.
New York City-based alternative asset manager Apollo Global Management announced it was buying Bridge Investment Group Holdings in February in an all-stock transaction with an equity value of approximately $1.5 billion, which should boost the numbers when it closes later in the year.
Additionally, a number of smaller REITs could potentially be on the market, offering the possibility of more mergers and acquisitions as the year plays out.
However, economic uncertainty could stymie the sales market later in the year, according to Thomas Henry, vice president of investments at Memphis, Tennessee-based owner and operator Fogelman Properties.
Henry said the post-peak environment should support better rent growth and occupancy gains. On the other hand, uncertainty around macroeconomic events and policy could damage consumer sentiment, which has an outsized impact on the overall economy.
“However, these conditions also create opportunities — sellers are becoming more realistic on pricing, and well-capitalized buyers can take advantage of slightly less competition to secure quality assets below replacement costs,” Henry said.
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