Economy Watch: Investors Gung-Ho for Apartments in 2010

Real Capital Analytics reported on Tuesday in its year-in-review of the U.S. apartment market that a gold rush mentality hit the apartment market last year as investors sought and bought properties. All together, apartment property investment sales mushroomed 96 percent in 2010 compared with 2009. Eager investors bought some $33.7 billion worth of apartments last year, with about $12.6 billion of that total in the fourth quarter of 2010 alone–and with nearly half of the 4Q10 total, $6.1 billion, occurring in December.

Are investors too eager? Will they regret their spending spree like a formerly drunken sailor in the harsh light of the next quarter or the next year? Maybe, but even though cap rates have been compressing lately, they’re still “on par with the average for the past decade,” the report notes. ROIs are expected to hold in the apartment sector for some time.

Of course, 2010 sales were nowhere near the peak of 2007, when investors snapped up $106.9 billion in properties–more of a mania than a rush, including REIT privatizations, portfolio sales, condo conversions and individual property transactions (in 2010, no one did any converting of condos or privatizations). But then again, that was a property bubble. RCA says that, in fact, 2010’s sales volume is “comparable to levels sustained prior to the … frenzy of 2005-07.”

State revenues on the upswing

State tax revenues rose for a third consecutive quarter in the third quarter of 2010, according to a report released Tuesday by the Nelson A. Rockefeller Institute of Government of the University at Albany. That continued the reversal of a downward trend in revenues that ate state budgets’ lunches throughout 2009.

More recent revenue gains were widespread, with 42 states showing an increase in revenues compared to a year earlier. After adjusting for inflation, tax revenues increased by 2.6 percent during the third quarter of 2010 compared to the same quarter of 2009.

That was the good news. Still, some states are weak in revenue collections. Alaska, for example, reported a 48.1 percent drop in revenues during the period, mainly due to falling oil prices; and Hawaii’s revenues were down 13.6 percent, partly due to slumping tourism. Also, the legacy of budget shortfalls will haunt some states for years, such as California, whose fiscal crisis has been compared to Ireland’s, and Illinois, whose crisis has evoked Greece (but without the riots so far).

Borders on verge of bankruptcy?

Various news outlets citing anonymous sources have reported that Borders Group Inc. is ready to bite the Chapter 11 bankruptcy bullet as soon as next week. The upshot of the filing will probably be that the bookseller will close 150 to 200 stores, or maybe even more. Currently the chain has more than 500 Borders superstores, plus a number of Waldenbooks and other smaller brands.

Previously, the company had negotiated a $500 million or so line of credit with Bank of America Corp. and GE Capital as debtor-in-possession financing, but it isn’t clear whether that’s going to work out. Book publishers, to whom Borders owes a fair chunk of change, are reluctant to take longer-term Borders debt in exchange for not being paid more immediate debts, which is one of the things that has to happen under the terms of the debtor-in-possession financing.

Wall Street was chipper indeed on Tuesday, with the Dow Jones Industrial Average vaulting 148.23 points, or 1.25 percent, thus clearing the 12,000-point bar for the first time since the onset of the Great Recession. The S&P 500 was likewise in high spirits, increasing 1.67 percent, while the Nasdaq did best of all, gaining 1.89 percent.