Foong on Finance: The Apartment Sales Market Slows Down

The apartment investment sales market since the f...

The apartment investment sales market since the financial market crisis
occurred in mid-September has “freezed up” as apartment buyers and
sellers face deep uncertainty over the future of the nation’s—indeed,
the global—economic condition.

According to the results of one study, reported here in the
previous issue, apartment sales volume has plunged a whopping 69
percent. Indeed, one broker, Kitty Wallace, senior vice president at
Sperry Van Ness, says that in her experience in California,
multi-housing transactions have dropped 70 to 80 percent.

The severe drop in apartment investment sales volume generally is
attributed to a combination of negative sentiment and uncertainty; lack
of bank financing; the death of conduit financing; tougher LTV and DSC
requirements from Fannie Mae and Freddie Mac; and a continuing gap
between buyer and seller expectations.

Anecdotally, many institutional and high-leverage players have
dropped out of the sales market. Among the ones remaining are long-term
holders and players who can put down a lot of cash. For these players,
many of them no doubt family-owned concerns, this is the opportunity to
get into previously difficult-to-enter markets.

One can only hope the investment sales market inactivity is
temporary as the government works to unfreeze the credit markets with a
bailout package and implement a yet-to-be-legislated fiscal policy to
stimulate the economy. Hopefully, the fiscal stimulus, which
President-elect Barack Obama says he is set on, will not be “too little
too late.” So far, initial signs of the effects of the bailout package
seem to be encouraging, and experts say a financial meltdown seems to
have been averted—for now.

No one knows when the apartment sales market will come back but
some players are optimistic it could be next year, when the economic
picture becomes clearer—and assuming the financial markets do not
unravel further.

Meanwhile, keep in mind that the multi-housing investment sales
market is still the top-performing commercial property sector. Other
commercial real estate sectors do not have Fannie Mae and Freddie Mac
to keep their transactions volumes alive.