Dive Brief:

• After record-setting sales that averaged $332 billion per year in 2021 and 2022, apartment transaction volume fell 61% to $119 billion in 2023, according to a report that data firm MSCI Real Assets shared with Multifamily Dive.
• Although apartment sale prices fell in 2023, they didn’t lose all the value gained after the pandemic. The Real Capital Analytics Commercial Property Price Index for apartments fell 8.4% last year, but it had grown at a 23.5% annual pace as recently as the first quarter of 2022.
• For mid- and high-rise apartments, cap rates rose 50 basis points to 5.3% from Q4 2022 to Q4 2023. For garden apartments, they jumped 60 basis to 5.5% in the same time period. From 2015 to 2019, cap rates averaged 5.7% for garden-style properties and 4.9% for mid- and high-rise properties.

Dive Insight:

Typically, deal volume peaks in Q4, but that wasn’t the case in 2023. Only $10.5 billion of mid- and high-rise properties traded in the quarter, after an average of $12.9 billion changed hands in Q2 and Q3. For garden apartments, $16.4 billion traded in Q4, which was lower than Q1 — usually the slowest time of the year.

Part of the problem last year was that as borrowing costs rose, sellers couldn’t get the prices they wanted. For instance, Dallas-based developer JPI took a couple of deals to market but ended up holding onto them, according to Miller Sylvan, senior vice president of development for the firm.

“Based on the pricing, it just didn't seem like the right time to sell for us or our investors,” Sylvan said. “Luckily, we have pretty flexible terms on our loans, and we can just kick it down the road and wait for a sunnier day.” 

With the Federal Reserve slated to potentially cut rates, Sylvan and other multifamily leaders have their fingers crossed that there will be more transactions in 2024. “We are hopeful and optimistic that we will start seeing transactions on an existing asset basis,” he said.

Sylvan isn’t alone in that hope. Otto Ozen, executive vice president of Costa Mesa, California-based brokerage firm The Mogharebi Group, thinks it takes the system about 24 months to process massive change, such as the interest rate hikes that began in early 2022.

“I expect this to be better than last year, especially if rates go even a little bit lower than where we're at now,” Ozen said. “There's a lot of pent-up activity that hasn't transacted that will come to the market. As rates go lower, more people are entering the market to buy.”

Buyers may also find some properties from forced sales in 2024. “It’s not a huge giant pool of distressed assets, but a finite pool will clear the market this year,” Ozen said.

Click here to sign up to receive multifamily and apartment news like this article in your inbox every weekday.