“Even some of the big buyers are saying cost-per-unit purchases on the West Coast are getting bid up,” says William Ross, executive vice president of Bloomington, Minn.-based NorthMarq Capital, a commercial real estate investment firm. “We are seeing some buyers consequently move back inland to the Chicago and Texas markets looking for opportunities, especially if they are by-the-pound buyers.”
Indeed, UDR’s portfolio deal with MetLife brings the REIT new communities in Pennsylvania, Colorado, Maryland, and Texas in addition to adding heft to the firm’s portfolios in Washington, D.C., California, and Washington state. “The markets that have thus far improved the greatest are those with the most transparent NOI growth, and that appears to be Northern California and Seattle,” Toomey says. “As more markets come online, the number of buyers will spread out. Instead of winning an auction of 30, you’ll only have to win an auction of five, [creating a competitive climate] which in turn brings more players into the market.”
#4 Rents Will Beat Pro FormaS.
One of the primary catalysts to deal flow in 2011 will be continued rent growth, supported by an unremitting flow of households back into apartments from single-family homes and condos. “The growth in rent rolls isn’t a lovely little increasing graph—it is a major spike,” Ross says. “And that’s where we’re seeing—and expect to see—the most purchasing activity: in markets where occupancies are good at 90 percent-plus, but [also] where rents have been crushed and are poised for substantial, year-over-year, $50 to $70 rent increases.”
Certainly the institutional set is anticipating massive rent gains, which might restrict trading in the upper echelons of the market, concentrating additional deal flow away from core investments but offering new business to third-party fee managers. “On the management side of core and core-plus, we feel there is still opportunity for the more institutional client accounts,” Laramar’s Woodward says. “They have deep pockets and staying power and are hanging in for the long haul.”
#5 Property HolD PEriods May TIGHTEN.
Or not, if asset values continue along their current stratospheric growth trajectory. In October 2010, Irvine, Calif.-based multifamily owner/manager Sares-Regis Group—which still considers itself a net buyer looking to deploy capital into apartment transactions—was able to sell the 231-unit Bella Villagio Apartments in San Jose, Calif., to Palo Alto, Calif.-based Essex Property Trust for $54 million and realize its pro forma return expectations after an ownership period of only 16 months.
