The Housing Chronicles Blog: Apartment cap rates down; prices rise in 2007

Monday, April 7, 2008

Apartment cap rates down; prices rise in 2007

According to our friends at apartment data provider RealFacts, 2007 was much better for the multi-family rental market than it was for new home sales. The company, which tracks apartment data for over 12,200 investment-grade apartments in multiple markets and states, is still crunching numbers for 2007 but has provided some preliminary conclusions in their latest newsletter:

Although 2007 has ended, we are still researching apartment sales transactions for that year. As of early March, we had found details of 1017 sales. Chances are we will find some more in the coming months, but we certainly have enough to spot some trends.

The first conclusion we can draw is that sales volume is more or less unchanged from the previous year. We have 1027 sales of complexes in the database for 2006, strikingly similar to the number of sales for 2007. Since our database covers 12.200 complexes, that suggests that 1% of apartment complexes change hands in a year.

Generalizing about a database that covers so many different MSAs is dangerous, because it blurs the details of individual markets. But let’s live dangerously and say that prices per unit and per square foot have gone up in 2007 while cap rates have gone down. The following table summarizes the changes state by state,

State Av.CapRate Av.PPU Av.CapRate Av.PPU
AZ 5.8% $93,025 5.9% $79,223
CA 5.3% $181,161 5.1% $177,043
FL 6.0% $93,997 6.5% $109,401
CO 5.0% $92,605 4.9% $90,587
IN 6.8% $53,891 7.3% $58,243
KS 6.5% $74,709 6.8% $86,192
MO 6.5% $53,066 6.9% $53,475
NV 5.3% $123,987 6.0% $123,386
NM 6.5% $90,159 6.8% $60,907
OK 6.4% $33,879 7.2% $39,309
OR 5.0% $102,440 5.8% $87,500
TX 6.8% $62,379 7.3% $60,268
UT 6.2% $89,394 7.0% $50,436
WA 6.0% $122,720 5.2% $110,528

To continue with this dangerous act of generalization, we can say that prices have been going up and cap rates down in the twenty-first century. The exception to the trend came in 2005, when prices went up so fast due to sales to condo converters that they fell in 2006. In future newsletters, we’ll look in more depth at sales in some specific markers, where there have been high numbers of transactions.

Want to sign up for this bi-monthly newsletter? You can subscribe here.

No comments: