The Expert: Transaction Velocity Drops, but Positive Signs Emerge

Year-to-date multi-family transaction volume plummeted to historically low levels in the first quarter of 2009. As we move into the second quarter, activity appears to be increasing as sellers adjust their expectations, a change that will establish new pricing levels over the next 60 to 90 days. Private investors will drive the market over the next six to 18 months, as institutional money has disappeared. Most of the transactions will trade at substantially discounted prices to replacement costs, which have come down considerably in the past 12 months.The apartment sector has benefited from the presence of Fannie Mae and Freddie Mac, both of which continue to fund deals. The yield on the 10-year Treasury has been volatile, dropping to nearly 2 percent late last year, prompting many lenders to favor all-in rates, which average in the high-5 to mid-6 percent range for agency loans. Commercial banks and life insurance companies are issuing loans with all-in rates ranging from the mid-6 percent range to 8 percent. Lenders are devoting greater attention to sponsorship. A borrower’s asset base and potential economic stresses that may affect the underlying assets are playing a significant role in determining loan terms.In addition, there has been some softening in the rental market in the form of landlord concessions and lower rents. At this point, however, it isn’t alarming, and occupancies at well-managed, well-located properties in most major metropolitan areas are still holding up relatively well.Linwood Thompson is senior vice president & managing director of the National Multi Housing Group for Marcus & Millichap Real Estate Investment Services Inc.