Monday , 26 September 2016
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Capital Markets Shift: Apartment Investing Hits Record; Now Rivals Office

(By Dale King) HOUSTON  – Sales of multifamily dwellings soared across the nation in 2015, as did the total number of dollars invested in apartment units, according to national figures provided by JLL Multifamily Capital Markets.

The firm says investors poured almost $139 billion into multifamily product, trumping 2014’s record-setting $106 billion by a whopping 31 percent.  A global provider of capital solutions for real estate investors and occupiers, JLL predicts multifamily volume for 2016 will keep pace, though at a moderated rate, growing between 5 and 10 percent.

JLL’s nationwide research shows the highest annual growth rate for apartment sales volumes in three years. In fact, the last quarter of 2015 was the strongest three-month period ever recorded, with year-over-year transaction volume up by more than 38 percent to $46 billion.

For the first time in history, multifamily sector buys are within striking distance of office sales, which also hit a record in 2015 of $141 billion.

The numbers “are incredibly compelling,” said David Williams, international director and leader of JLL Multifamily Capital Markets.  “While institutional investors made up the majority of buyers in 2015, we expect foreign dollars to be the wild card in the year ahead.  Lagging cross-border investment into the sector will increasingly emerge to boost both volume and pricing.”

Experts at JLL say a number of factors came together to boost the 2015 number, and they will play a part in the sector’s continuing momentum. They include:

  • Large Portfolio Acquisitions:  Blackstone’s $2 billion purchase of Greystar’s 32-property multifamily portfolio, Lone Star’s $6.8 billion acquisition of Home Properties, Inc. and its 107-property portfolio and Starwood’s pending acquisition of some 67,800 multifamily units, including a $5.37 billion purchase of Equity Residential’s portfolio, all made headlines in 2015.  The year ahead should show similar acquisitions, including the privatization of more REITs.
  • Development: Perhaps in response to fears of overbuilding, permits for multifamily development began to fall for the first time in the fourth quarter of 2015, and the pipeline of capital into construction has slowed as well.  Still, more than 310,000 units in supply from merchant builders should deliver in 2016, providing additional investment fodder with opportunities to acquire multifamily product.
  • Rising Rents:  Rising occupancies have led to increased rents across much of the nation, reaching year-over-year growth of 4.6 percent at year’s end. This compares to 3.5 percent seen in the U.S. office sector, with rent growth expected to remain strong at above-average rates in the year ahead.
  • Debt Liquidity:  Loan originations from Government-Sponsored Entities (GSEs) including Fannie Mae and Freddie Mac drove outstanding agency debt to surpass $440 billion with year-to-date growth of 7.4 percent at the end of the third quarter.  Conduits and banks also accelerated lending, making for an extremely liquid pipeline that’s expected to continue this year.

“We expect interest rates to play an increasingly larger role in the buying patterns of investors in 2016,” said Christine Espenshade, managing director with JLL.  “In theory, prices should come down due to the Fed’s recent increase in rates, but multifamily Net Operating Incomes (NOIs) are continuing to rise, so that may not play out as expected.”

“We may see some bumps in the road over the next couple of months,” she added. “But well-capitalized owners, both foreign and domestic, should do very well and push volumes to the upper limits yet again.”

 

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