APARTMENT NEWS

ARCHIVES 2009:

Multifamily Transactions Stall in Fourth Quarter
Deal flow falls 87% at the end of 2008, versus the year-earlier.

Source: MULTIFAMILY EXECUTIVE News Service
Publication date: February 26, 2009

By Les Shaver

For most of 2008, apartments sold better than their commercial real estate sector, but it still wasn't pretty, according to Real Capital Analytics, a New York-based research firm that focuses on the capital investment markets for commercial real estate. Overall, apartment sales fell 62 percent to $37.3 billion.

Then, the fourth quarter of 2008 came along, and things got really ugly. Volume that quarter fell 87 percent compared to the fourth quarter of 2007. "The credit crunch and a large pricing gap between buyers and sellers inhibited sales through the third quarter of 2008," the report said. "Since then, the market has almost completely stalled, and fourth quarter volumes fell back to 2001 levels, well before the past bull market started."

These numbers aren't a surprise to multifamily executives out in the field. Leslie Furst, senior vice president of finance at Kettler, an apartment owner and developer based in McLean, Va., says her company put one asset on the market. Buyers would then trade and retrade their bids. Not only was capital hard to come by, but buyers were scared to make a move.

"We didn't see any sales activity in the fourth quarter," Furst says. "Nobody wants to buy an asset in a falling market."

Compared to other commercial sectors, however, things weren't that bad. The $37.3 billion in sales for 2008 was the second-highest dollar amount in commercial real estate (after industrial properties). The 2,055 apartments sold was a drop off of 49 percent, but that was the lowest percentage decline in the commercial sector.

The size of transactions fell as well. In 2007, there were 53 transactions valued at more than $1 billion. Last year, that number was seven. One-off deals comprised less than 50 percent of transactions in 2007. Last year, they accounted for 80 percent of all deals.

Since the start of 2009, deal flow hasn't picked up, with only $1.7 billion closed and another $1.2 billion reported under contract. But that could change as some owners are forced to sell. Right now, Real Capital says there are $4.8 billion in garden-style assets (618 properties) and $2.2 billion high- and mid-rise assets (84 properties) in distress. The company defines distress as a situation where the mortgage is in default, the owner is bankrupt, or the property has already been foreclosed upon.

There is an additional $11.2 billion in garden-style assets (731 properties) and $5 billion in high- and mid-rise assets (123 properties) currently labeled as "troubled."

This will create opportunity, says Todd Goulet, senior vice president with KeyBank Real Estate Capital. "I think people anticipate that there are going to be more forced sales that take place as this year goes on," he says. "People will be facing these loan maturities, and they won't be able to get them refinanced. Rather than turn over the keys, they'll sell."
Pack Leaders

Here are the Top 5 apartment markets in the country, by transaction volume.

Market	Volume (in millions)	2008 rank	2007 rank	2006 rank
Manhattan	$2,876	1	1	1
Dallas	$1,757	2	6	2
Atlanta	$1,740	3	4	4
Houston	$1,613	4	8	6
Seattle	$1,569	5	7	8

Source: Real Capital Analytics