Apartment Sales Set Record in 2018 Amidst Rising Interest Rates, Market Maturity
By Dennis Kaiser
A record volume of multifamily sales was recorded in 2018, though transaction activity slowed in the fourth quarter. The high level of deal flow was likely tempered by a maturing cycle and increased interest rates.
New research by New York-based Real Capital Analytics (RCA) shows that more than $172.6 billion of apartment properties were traded last year. That was a record level of deal activity, and represents a 12% volume increase over 2017 and an 8.9% year-over-year price change.
RCA commercial real estate economist Jim Costello writes in the U.S. Capital Trends report, “This late in the economic expansion, it can be surprising to see apartment deal volume continue to grow. The decline in activity seen in 2017 led many to believe that 2016 was the high-water mark for the sector in this cycle. Despite cap rates at record lows and prices still growing, deal volume climbed to a record high level in 2018.”
The 2018 sales flurry was driven by single apartment buildings activity, which rose $12.6 billion from 2017 to reach $130.1 billion in 2018, according to RCA. Single asset deal volume for the apartment sector was bigger than overall deal volume for all other sectors but office. Meanwhile, portfolio sales rose 15% and entity-level sales climbed 23%, largely driven by Brookfield’s $4.6-billion acquisition of Forest City.
Costello writes, “This growth in volume is occurring in the face of record high prices. The RCA CPPI for the apartment sector climbed 8.9% in 2018 from 2017. This growth late in the cycle is impressive, but it is a slower pace of growth than recent trends. Prices grew at double-digit rates from 2014 to 2017.”
While deal volume was up for the year overall, the pace of growth did slow into Q4 2018. Deal volume was up 9% YOY in Q4 2018, which is not a bad pace, notes Costello, but activity had grown at an average 14% YOY quarterly pace earlier in the year. This slower pace of growth was especially evident in the pace of single asset sales, which were up 3% from Q4 2017.
By apartment subtype, RCA says the clear winner for the year was the mid/highrise sector. Deal volume for this subtype was up 34% for the year, and up 41% YOY for Q4 2018. Single asset sales involving mid/highrise assets grew 26% for the year, but slowed into Q4 2018. Quarterly growth averaged 38% YOY earlier in the year, but was only at a 9% YOY pace in Q4 2018.
The garden apartment sector was comparatively weak in 2018. Volume was up only 2% from the pace of sales in 2017.
“The slowdown in the pace of sale growth for various apartment segments into Q4 2018 is in part a story about the turmoil in the financial markets into Q4 2018,” writes Costello. The 10-year U.S. Treasury had surged past the 3% level into late September and early October, which introduced a sense of caution on the part of buyers.
Despite the turmoil in the financial markets, cap rates were largely unchanged from a year earlier in Q4 2018. Cap rates for garden apartments averaged 5.5%, while those for mid/highrise assets averaged 4.9%, reports RCA.
Dennis Kaiser is Vice President of Content and Public Relations for Connect Commercial Real Estate. Dennis is a communications leader with more than 30 years of experience including as a journalist and in corporate and agency marketing communications roles. He is responsible for Connect’s client content operations and is involved in a range of initiatives ranging from content strategy, message development, copywriting, media relations, social media and content marketing services.
In his most recent corporate communications roles, he led a regional public relations effort across Southern California for CBRE, played a key marketing role on JLL’s national retail team, and was responsible for directing the global public relations effort at ValleyCrest, the nation’s largest commercial landscape services company.
In addition to his vast commercial real estate experience, Dennis has worked on communications and launch strategies for a number of residential projects such as Disney’s Celebration in Florida, Ritter Ranch in Palmdale California (7,200 homes, 22,000 acres), WaterColor in Florida and PremierGarage in Phoenix.
Dennis’s agency background included firms such as Idea Hall and Macy + Associates. He has earned an outstanding reputation with organization leaders as a trusted advisor, strategic program implementer, consensus builder and exceptional collaborator.
Dennis has developed and managed national communications programs for Fortune 500 companies to start-ups, both public and private. He’s successfully worked with journalists across the globe representing clients involved in major-breaking news stories, product launches, media tours, and company news announcements.
Dennis has been involved in a host of charitable and community organizations including the American Cancer Society, Easter Seals, BoyScouts, Chrysalis Foundation, Freedom For Life, HOLA, L.A.’s BEST, Reach Out and Read, Super Bowl Host Committee, and Thunderbirds Charities.
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