Housing Finance reports: The apartment market is beginning to edge out of the worst recession since the Great Depression. The market’s current conditions warrant neither a “clear the decks” nor an “all clear.” Instead, it comes down to knowing individual assets and markets, and how they fit into the broader economic and real estate cycle.Here are several trends key to understanding where the multifamily market is today—and where it may be headed.Apartments have typically commanded the lowest capitalization rates (and therefore the highest prices per dollar of net income) of the major income property types. When condo conversions peaked in the fourth quarter of 2005, investment grade apartment buildings were selling at average cap rates of 5.8 percent—a 17 percent premium to the average cap rate for office properties and a 21 percent premium to caps for retail, based on data from global commercial property research firm Real Capital Analytics.However, the same data shows that with the recession and subsequent investor reticence, the volume of multifamily property sales fell to a relative trickle—just $14 billion in 2009. Prices for the properties that did change hands—often distressed transactions—fell too, and cap rates rose. According to the Moody’s/ REAL Commercial Property Price Index, peak-to-trough prices fell by 40 percent for apartment buildings, compared to a decline of 36 percent for office properties and a 32 percent decline for retail.
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