Smaller investors and smaller properties lead the way

In terms of the deals hitting the market now, the first offerings or apartment buildings for sale have tended to be smaller properties. “Lower quality and smaller buildings are recovering new listings quicker,” says Andrew Rybczynski. “This tracks with transaction volume, where the average size of a multifamily deal by dollar amount fell 35 percent year-over-year in the second quarter. So, the bigger and higher quality product usually associated with institutional owners is the segment that is slowest to return to market.”

Many of these firms have to report to their investors the value of the properties they have invested in every quarter. Because of that, these institutional investors can’t tolerate the uncertainty in rent collections over the next year, even if they are confident in the value of the property in the long term.

“There are very, very few institutional investors and large private equity firms in the market to buy right now. We have not seen the public large multifamily apartment REITs,” says CBRE’s McAuliffe. “They don’t want to buy at $50 million just to have to write it down to $40 million.”

So far private buyers, such as high-net worth individuals and private REITs, have been the most receptive. “The conversations are going well,” says McAuliffe. “To start those conversations, you have to have a stable performance at the property level… the property can’t be at 80 percent or 85 percent for its rent collections.”

These conversations began to turn into closed sales in June. “All of the deals closing second half of June are all based on post-COVID deals,” says McAuliffe.

The owners offering properties for sale so far included closed-end private equity funds, which may be reaching the end of their hold periods for properties they bought a few years before.

However, so far, prices have not changed appreciatively. The properties being offered for sale are largely the opposite of distressed. They are well-occupied and show consistent steady income, even in the current economy crisis. “The pricing never changed and had the pricing changed we would have kept the property,” says Reiter.

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Work cited: Bendix Anderson, July 08, 2020

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