MARKET SNAPSHOT: The Little Gem Known as Salt Lake City

By Erika Schnitzer, Associate Editor  Salt Lake City—For those buyers looking for distressed assets in Salt Lake City’s multifamily market, don’t get your hopes up.“We are seeing people waiting on the sidelines for distressed properties to come to market. In Salt Lake City, that’s not what you want to be doing,” advises Richard Bird, regional manager of the Salt Lake City office of Marcus & Millichap. “There’s not a lot of distress,” he adds.That’s not to say that no one is struggling in the metro area, though. In fact, notes Bird, “those struggling are selling, but we are not seeing REO stuff right now. People who have cash are getting good deals because they can close quickly—that’s been where we are seeing the action right now. If you’re sitting on the sidelines, you’ll miss out on some great buys,” he warns.And for those deals that have closed, Class A properties have sold in the high-6 to high-7 percent cap rates, while B and C properties are selling in the mid-8 to mid-9 percent range.Calling Salt Lake City “the little gem,” Bird acknowledges that while the metro is certainly not sheltered by the national economic crises, it is performing well compared with competing markets in the region.“The great thing about apartments in Utah is the high barrier-to-entry,” he tells MHN. “Apartments that are here have been able to weather the storm, and we don’t see deals in financial distress.”The state’s high barrier-to-entry stems from the fact there is not much land on which to build apartments. Consequently, compared to other major metro areas in the region, Salt Lake City’s rents and occupancy have remained strong. Vacancy is expected to increase 140 basis points, to 6.3 percent, this year, according to a second-quarter Apartment Research Report by Marcus & Millichap. In 2008, vacancy increased 60 basis points, though Bird notes that at this time last year, vacancy was below 3 percent. He predicts, however, that the rate will climb as layoffs increase—local employers are forecast to cut 26,600 jobs, a 4.2 percent decline, according to the second-quarter report. Last year, roughly 6,400 positions were eliminated.Unlike competing markets, such as Denver and Las Vegas, Salt Lake City has not seen a large shadow market effect, as there was not much of a condo boom in the state.However, according to the report, approximately 1,100 units are slated for delivery this year—following the delivery of 370 units last year—which will expand the metro’s inventory by 1 percent and contribute to an increase in vacancy. The highest vacancy rate is currently seen in the Southwest and West Jordan submarkets, where the majority of new apartments will be constructed, Bird tells MHN, while the best-performing submarket is in the Northeast—downtown and near the University.The report indicates that asking rents are forecast to contract 2.3 percent to $735 per month, while effective rents will end the year at $681 per month, a 3.7 percent decline. Unlike other metros, where transactions are down due to the gap between buyer and seller expectations, the velocity in Salt Lake City is down because “people don’t want to sell,” Bird explains. “Those who own are happy with their investments and that’s why we see transaction velocity is down. We are healthy right now.”Click here to read last week’s Market Snapshot on Boston.