1) The availability of attractive financing. Plus, the spread between fixed-rate financing and actual year one cap rates is certainly the widest that it’s been in recent history, perhaps ever. (There’s rumor that there was a bigger spread during the Roman Empire, but that may just be an old wives’ tale.)
From a macro perspective, the spreads between the treasury indexes and the premium on multifamily interest rates will almost certainly widen in the near term, but cap rates should remain stable in Class-C properties. They will probably continue to compress to a certain degree for Class-B assets.
M&M tracks 40 metro apartment investment markets and delivers quarterly reports on occupancy, rents, absorption, new construction and permits (See list below). You may have to register with them to access the reports.
The April 2012 National Multifamily Housing Council’s Quarterly Survey of Apartment Market Conditions was conducted April 16-23, with 91 CEOs and other senior executives of apartment-related firms nationwide responding.
Capital availability lacks uniformity. Only 17 percent of multifamily firms reported that capital is available for all property types in all markets. By contrast, 36 percent said it is constrained in secondary and tertiary markets and 34 percent said it is constrained for all properties other than top-tier ones – even in primary markets.
The Debt Financing Index declined to 65 from 74. As the only index that dropped below 50 in the past nine quarters (48 in Q4 2010), borrowing conditions continued to improve for the industry. Just four percent believed conditions worsened from last quarter, compared to 34 percent who reported improving conditions.
The Equity Financing Index grew slightly to 62 from 60. One third of respondents reported quarter-to-quarter equity financing as more available, compared to nine percent reporting less availability.
Marcus & Millichap Q1 call on the apartment building investment climate this morning:
Year over year manufacturing jobs grew 238k. Manufacturing = 20% of GDP but gets no press, where as single family housing < 2% gets all the coverage.
There is a historic % of 18-34 Y/Os still living ‘with the parents’ but they are also getting a larger proportion of the new jobs. (See chart) Good for apartment building investors as these people typically become renters when they do move out.
A props in primary (coastal) markets seeing compressed cap rates; most on the call (including me) thought they were a little frothy.
[Urban] TOD (Transit Oriented Development) has performed better and has a sexier image with many institutional investors. But while equity investors continue to favor urban TOD, developers are having a more difficult time finding construction debt at leverage levels that would make those deals pencil out.
Meanwhile out in the ‘burbs: “On suburban sites, you see yields in the 7 to 8 percent range. On the core infill, you’re really building to a 5, 5.25 percent, maybe, and that’s getting dangerously close to acquisition cap rates.”