Multifamily interest continues to remain strong; the demand for deals appears to be at peak levels. We are seeing the return of “pre-sale” transactions—a trend that we haven’t experienced in years. Buyers are also focusing on suburban deals, another trend that is gaining momentum as cap rates on infill locations fall below the 5 percent mark.
The most sought-after deals are where a “value-added” story exists, especially the early 1990s vintage product, where kitchens and baths can be updated. We’ve seen several recent deals where a new buyer has gone in and updated these rooms then realized significant rental increases. There is tremendous equity available in the marketplace for deals with a story.
Competition for deals is strong. One of our most recent transactions involved a 1,000+ unit asset with a need for major renovation. The interest level was the highest that I’ve seen in years—more than 50 tours and more than 30 offers.
More sellers are able to get buyers to start due diligence from execution of an access agreement rather than a contract; buyers are committing to non-refundable earnest money up front, and not based upon contract execution. We have not seen this occur since the last cyclical peak.
Today’s buyers feel that if they can get deals with 10-year financing at sub 4 percent rates, the cash-on-cash return will provide double digits and excellent cash flow over the holding period. Financing is still at an all-time low and, in some cases, buyers are able to even obtain a few years at “interest only” rates.
Assumptions on existing debt, however, are proving to be a frustrating experience. We are seeing in some cases that it is taking up to five months to secure approval assumptions. On some CMBS loan assumptions, lenders are even trying to modify terms or the existing debt. This will definitely cause a number of those deals to fall out of contract.
Sales activity has been very strong, and all DFW multifamily brokers are very busy. ARA Dallas certainly anticipates having all-time record sales in 2013.
Brian O’Boyle is founder and managing broker of Apartment Realty Advisors’ Dallas office. Contact him at [email protected].
