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Apartment REP Blog
Jan 12

Written by: Apartment REP
1/12/2010 11:40 AM 

Triangle apartment sales fell off a cliff in 2009—total sales volume was off 75% with total sales of $276,703,000 compared to $1,088,681,000 recorded in 2008. Only 20 transactions closed—63% fewer than the 54 sales in 2008. And measured in terms of total apartment units sold, the 4,806 units that sold in 2009 were 65% less than the 13,770 sold in 2008.

The Triangle’s performance was worse than the national apartment sales decline of 61% where only $14.8 billion of apartments sold in 2009 compared to $38.4 billion in 2008 according to Real Capital Analytics.

Two other important measures of the market’s decline are a significant 36% increase in average CAP rate and a 25% decline in the average per unit apartment sale price. Gone are the days of 2006, 2007 and 2008 when CAP rate compression ruled the day with 5% - 6% CAP’s common across all property classes. The market has gone back to text book underwriting principles, pushing CAP rates closer to the historical mean and restoring expected differences between Class A, B and C properties. 2009’s average CAP rate was 7.8% compared to 5.7% in 2008.

“Distressed” sales were a small part of the total sales volume in 2009. There were only three—the foreclosure sales of the 365-unit Bradford Crossing Apartments in Raleigh, the 40-unit Eagle Trace Apartments in Zebulon and the 360-unit Cary Brook Apartments in Cary. More distress is brewing and several foreclosures are expected in 2010 as high unemployment attacks occupancy and effective rents to diminish NOI.

These distressed sales will be part of what many believe will be a rising tide of investment sales in 2010. But don’t expect a tsunami. Property owners are still adjusting to the market’s devaluation of their properties. Many are in denial, hoping for CAP rate compression to return. There’s no shortage of buyers and equity capital, but unrealistic pricing expectations on top of a common reluctance to pull the trigger until prices hit bottom is keeping many on the sidelines. These bookends explain the huge price gap between sellers and buyers and the anemic sales volume.

Declining or flat NOI’S, tougher lending and distressed sales prices will continue to erode property values as the economy climbs slowly out of the recession and unemployment peaks later this year. The bottom may very well not be seen for another year or longer.

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