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Apartment REP Blog
Aug 5

Written by: Apartment REP
8/5/2010 3:50 PM 

Written by David Bracken | TRIANGLE NEWS & OBSERVER

Last week The Pointe at Chapel Hill, a successful apartment complex in one of the Triangle's most desirable markets, sold for the third time in three years.

This latest transaction confirmed The Pointe's status as the Triangle's barometer of where the market for multifamily properties has been and where it's headed.

In June 2007, at the peak of the commercial property boom, a partnership led by Principal Real Estate Investors of Des Moines, Iowa, paid $28.94 million for The Pointe, a 240-unit complex that was then called 82 Magnolia.

The deal, worth about $120,000 a unit, came when easy credit had helped create a feeding frenzy for many Triangle properties. With lenders requiring little equity from borrowers, the volume of commercial property sales surged, as did the prices.

When lending markets froze up in late 2007, so did the deals. Property owners who were heavily leveraged suddenly found themselves with loans that no longer made sense. Buyers with cash were king.

Two years later, Sherman Residential of Deerfield, Ill., swooped in and bought The Pointe for $21.75 million. The purchase, which Sherman financed with a 60 percent loan, solidified for many just how far the market had fallen from its high.

Based on the latest trade involving The Pointe, Sherman appears to have bought at or near the bottom.

Sherman sold The Pointe to Henderson Global Investors for $25.425 million, or $106,000 a unit. That's 17 percent more than Sherman paid just 15 months earlier.

Henderson owns just under 20,000 apartment units in the United States, but The Pointe is the first asset it has owned in the Triangle in several years. The London firm is one of the largest investment managers in Europe.

The age and location of The Pointe made it a good fit for a property fund that will soon be fully invested, said Susan Motowidlak, Henderson's co-portfolio manager in the U.S.

"We like the Chapel Hill market," she said. "We like Raleigh."

Henderson was able to purchase the property without placing any additional debt on it, which made the firm an attractive buyer for Sherman. As part of the deal, Henderson assumed a $13.1 million loan on the property that has an interest rate of 5.4 percent.

Although Henderson's purchase price is 12 percent less than Principal paid three years ago, the deal is further proof that investors' appetite is increasing for newer apartment complexes in prime locations.

Of the 15 Triangle apartment complexes that sold this year, six are considered Class A properties.

"Average price per unit this year is 24 percent higher than at the same time last year because of the strength of the 'A' market," said Jim Scofield, CEO of the Raleigh real estate company Apartment REP. "There's an especially strong demand for them."

That's largely because of the Triangle's economic centerpieces: Research Triangle Park and the region's major universities.

Investors such as Henderson are betting that occupancy and rental rents will rise quickly as the economy improves - something that already appears to be happening.

The apartment occupancy rate in the Triangle was 93.6 percent in the second quarter, according to Dallas-based MPF Research, which analyzes apartment data in 64 metro areas across the U.S.

That was 2.8 percentage points higher than at the same time last year. Only Austin and Denver posted larger increases.

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