Commercial real estate firm CBRE Inc. is anticipating a record year for investment in multifamily properties nationally, but the Mid-Atlantic market isn’t quite as hot as the country as a whole.
The Mid-Atlantic market, which includes Baltimore and Washington D.C., could exceed $5 billion, the benchmark for a solid year. Investments in the market’s multifamily sector year-to-date are about $4.2 billion.
“In terms of national activity we would be mirroring that. The Class A have not quite kept up with last year’s numbers, and so the Class Bs have really sort of filled in the gap,” said William Roohan, CBRE’s vice chairman of capital markets and multifamily. “But considering that we have around … negative-2 to plus-3 rent growth for Class A, the market has been very, very robust.”
Nationally the multifamily sales volume is on pace to surpass the 2007 record of $105 billion. The market produced $27.5 billion in the third quarter, a 28 percent increase year over year. According to CBRE, multifamily sales are currently on pace to reach $105.2 billion nationally.
Although the Mid-Atlantic market isn’t on a record-setting pace, it will almost certainly surpass recent totals: $4.4 billion in 2011, $4.1 billion in 2012 and $4.8 billion in 2013.
Roohan said he believes the reason for the steady multifamily market is that it consistently provides the best return on investment, as well as being the most predictable and easy to maintain segment of the commercial real estate market.
“If you look at the other food groups … in office, warehouse, retail if you go dark, you go dark for a year or two years. In an apartment building, on a Monday, when you come into the office you can decide if you want to rent the apartments,” he said. “You might not get what you want but you can certainly rent it for 90 percent or 95 percent.”
Some of the factors keeping the market from being as tight as many other parts of the country is that it’s still feeling the hit from the 2013 government shutdown and sequestration and because of an abundance of supply. All of those combined to create tepid rent growth, particularly in Class A buildings, which makes it less attractive to investors. That, in turn, results in lower prices than what sellers were anticipating.
That tepid rent growth in Class A is being driven in large part by negative rent growth in Washington, D.C., which is driving investors to purchase properties in areas like Atlanta, Houston, Dallas, Phoenix and even the Pacific Northwest.
Class A market hasn’t been particularly strong, in large part because of the supply that has come online recently after the area was one of the first to emerge from the 2008 recession. But Class B and Class C apartments are performing quite well.
“If you talk with owners of a rather large portfolio in the Mid-Atlantic with B and C properties they’re getting same-store rent growth around 3 percent year-over-year. That’s not a bad day at the office,” said Michael Muldowney, CBRE executive vice president of investment properties and multifamily properties group. “That’s the secret about our market is that those B and C properties are highly occupied and getting good year-over-year rent growth — steady performers.”