Bucking Credit-Constrained M-F Market, Equity Residential Sells $42M Portfolio

The meltdown of the capital markets has stemmed the flow of transactions in the multi-family sector. But, occasionally, a deal does get the green light. Equity Residential announced Thursday that it has sold a portfolio of apartment assets in Connecticut, for $42.7 million. The Kamson Corp. acquired the portfolio, which includes 436 apartments in four separate communities in Glastonbury, Manchester, Plainville and West Hartford.Overall, sales declined for multi-family properties in 2008, but compared to other product types, things could have been worse. Apartments declined the second least in dollar volume–62 percent–after industrial properties, and pulled in the second highest total sales, $37.3 billion, according to Real Capital Analytics. However, troubling signs did surface in the fourth quarter of last year, as the sector experienced a sharp drop in sales, and the rise in cap rates were comparable to other property types, according to Real Capital Analytics. The unavailability of debt is likely to mean that multi-family investment sales will remain subdued for 2009, said Jack Kern, managing director of Kern Investment Research. “The fundamental issue is yield,” Kern said. “With the lack of transactions and capital markets problems, an investor can’t say what the exit yield on a property is going to be.” There are likely to be buyers in the market for distressed multi-family properties, Kern said, but there may not be the amount of them that some buyers may hope for. Owners of multi-family properties in many markets have been able to push through double digit rent increases to tenants in recent years. Kern also notes that multi-family buyers typically are not able to obtain the high degree of leverage from lenders that, for example, buyers of office buildings can, so even though multi-family owners will not enjoy rent growth, the lack of leverage will act in their favor. Another factor that may help multi-family vacancies is the level of construction activity is likely to be low, Kern said. According to a statement on the Connecticut portfolio sale from CB Richard Ellis Inc., Kamson’s interest in the portfolio was driven by supply constraints in the towns, coupled with sub-5-percent vacancy in Hartford over the past decade. Kamson sees the purchase as a value-added opportunity, through renovations and rent increases, according to the statement. Jeffrey Dunne and Matthew Innes of CB Richard Ellis’s New York institutional group collaborated with Michael Stone of the firm’s multi-housing group to represent Equity Residential in the sale.