Amid Economic Gloom, Investors Keen for Multi-Housing Properties

U.S. multifamily investment sales have spiked thus far during 2011, reaching $13.9 billion during the second quarter of 2011, or more than half again as much as the first quarter 2011 total of $9 billion.

Washington, D.C.—Fannie Mae, drawing on data from Real Capital Analytics, reported this week that U.S. multifamily investment sales have spiked thus far during 2011, reaching $13.9 billion during the second quarter of 2011, or more than half again as much as the first quarter 2011 total of $9 billion. The second quarter sales figure is also a whopping 132 percent increase compared with the same quarter in 2010.

“Not surprisingly, the top three metros in terms of first half 2011 dollar-volume in sales were the Manhattan, Los Angeles and Washington, D.C./Northern Virginia metros,” says Kim Betancourt, director of multifamily economics and market research for the GSE. “All three of these metros saw more than $1 billion in apartment sales during the first half of the year.”

More surprisingly, Atlanta was a fairly close fourth for multifamily property investment interest, seeing $978 million in sales during the first half of the year. “Clearly, investors are focusing on Atlanta’s long-term growth potential rather than current market conditions,” notes Betancourt. “That’s likely because despite the metro’s job market weakness and excess condo supply, Atlanta is expected to see exceptional population growth, especially among prime renting-age residents.”

San Francisco, Chicago, Boston, and even Phoenix made it into the top 10 sales metros in first half 2011 dollar volume. Within the top 40 metros, Florida was well represented, with Tampa, Orlando, Jacksonville, and Tallahassee all seeing significant year-over-year increases of 94 percent and higher.

Even a number of tertiary U.S. metros saw increased interest, according to Betancourt, “an indication that capital is starting to chase the high yields in these smaller cities.” Citing Real Capital Analytics, Fannie Mae reports that the Southeast region had the greatest interest from buyers during the first half of the year, with 133 properties selling for a total of $1.6 billion.

Moreover, investors aren’t done yet. “New apartment offerings totaled nearly $25 billion in first half 2011 alone—the highest level in three years—and distressed property sales remain nearly one-fourth of the market,” explains Betancourt. “Pricing, in terms of cap rates, has remained steady, and interest rates are staying relatively low, at least for now. With the ongoing for-sale housing slump, investors should remain interested in the multifamily sector for the foreseeable future.”

The multifamily investment numbers were a bright spot in an otherwise glum report Fannie Mae’s Economics & Mortgage Market Analysis Group on the state of the U.S. economy. While the GSE’s August 2011 Economic Outlook doesn’t (quite) forecast a double-dip recession, it said “the probability of another recession is close to a coin toss.” For all of 2011, economic growth is expected to downshift to 1.4 percent from 3.1 percent in 2010. Moreover, growth is expected to pick up in 2012, but only to about 2 percent, compared with 3.1 percent projected in Fannie Mae’s July forecast.