The average asking price per unit for multifamily property on LoopNet in Los Angeles County had a slight uptick in the third quarter. The 0.89% increase, marked the first time in four quarters that prices did not decline.
Last month, an article in The Wall Street Journal Online reported the sale of The Gallery at NoHo Commons, a 438-unit apartment complex in North Hollywood, for $96 million indicating that deals are available in the multifamily sector. To be fair, the article also highlighted several risks related to investing in multifamily, namely the drop in transaction volume nationwide and the potential that apartment vacancies continue to decline if the economy doesn’t rebound.
But the article goes on to say that:
Opportunities for such higher returns in apartments have begun to attract some investors who previously retreated to other perceived safer investments such as Treasury bonds after the recession hit. … Apartment buildings are clearly producing higher returns than they used to. In 2007, the so-called capitalization rates of apartment buildings, derived by dividing a building’s net operating income by the price paid, were 5.8%. Today they have risen to 7.1%, according to Real Capital Analytics, a New York real-estate research firm.
But some people think a recovery for apartments is likely in 2011. If the job market stabilizes in 2010, younger workers are likely to be the first to be hired back because they are cheaper to employ, the theory goes. Since many of those people are renters, that is going to drive the apartment recovery, says Victor Calanog, director of research for Reis. (Read the Full Article )
So what do you think? Does this signal the end of the price decline or was it just an anomaly? Share your thoughts.