Dive Brief:

• Apartment transaction volume fell 76% year over year to $4.8 billion, according to a report that data firm MSCI Real Assets shared with Multifamily Dive. Sales were 54% lower than the average February before the pandemic.
• Values also continued their dive in February, dropping 8.7%, according to MSCI. Cap rates have also inched up with mid- and high-rise yields hitting 4.6% in February and garden-style hitting 4.8%.
• Both garden-style and mid- and high-rise properties have experienced slowdowns, with sales dropping 77% and 74% YOY, respectively. MSCI attributed these declines to investors finding it more difficult to underwrite new deals in this environment.

Dive Insight:

Apartment prices and transactions have been trending down for months now — really since interest rate increases started hitting the market last year.  “I think we had, in the third and fourth quarters of 2022, a severe shock to the system,” said Tim Peterson, chief investment officer for Florida-based owner and developer The Altman Cos.

In January, sales fell 71% YOY to $6.2 billion. Prices dropped 4.6% YOY and 10.3% since July when the declines began. Although the transactions have fallen dramatically in 2023, they are coming off historic highs in early 2022. 

“The comparisons are somewhat unfair,” Peterson said. “In ‘21 and early ‘22, we were in halcyon days, where any multifamily anywhere was priced to perfection. And there was more money chasing more deals than I've seen in my 35-year career in the business. We're nowhere near where we were a year ago.”

But Peterson doesn’t think the multifamily market needs to repeat the frenzied days of 2021 to be healthy. He sees return expectations and cap rates adjusting to the interest rate increases.

“There is enough liquidity and enough players in the market today to transact,” Peterson said. “And that liquidity and number of players compares to average times within the past. We’re not going to see the irrational exuberance that we saw for that wonderful period of time a year ago. But if your expectations are reasonable, there's the ability to profitably transact.”

Kevin Ibasco, vice president of acquisitions at Chicago-based apartment owner Waterton, senses some thawing in the sales market in March as more sellers get serious about putting their properties on the market. “I do think that we're seeing deals where the sellers — [the ones] that are in a position to sell and wanting to meet the market — are coming to market,” he said. 

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