Multifamily Sales Volumes Down 31%3 Aug 2018
Multifamily investment sales are down for the year in Orange County, compared to 2017, because of a lack of inventory.
Multifamily investment sales are down 31% for the year in Orange County, compared to 2017. The decline in investment activity is due to a lack of availability of deals and opportunities in the market. This year, only 10 properties over $15 million have traded hands in Orange County, and as a result, properties that do come to market see multiple offers and strong pricing. Sundance West Apartment Homes, for example, recently came to market, receiving 15 offers and $500,000 over the asking price. With limited opportunities, this is becoming the standard for the market.
“Year-to-date 2018 sales volume is 31% less than at this time last year. The reason for this decline is not for lack of buyer interest—it is just that inventory levels are at near historic lows,” Peter Hauser, a principal at Avison Young and a broker on the Sundance West Apartment Home deal, tells GlobeSt.com. “To provide some perspective, so far this year, Orange County has only seen a total of 126 apartment sales. This total includes 90 sales on assets ranging in size from 10 to 50 units, 19 sales ranging from 51 to 150 units and 17 sales from 150 units on up. That is a small percentage of the approximately 3,400 total apartment properties (with 10-plus units) in the county.”
The tight inventory is fueling increased pricing and low cap rates, even as interest rates have increased. “Cap rates are still low despite the fact that interest rates are up almost 100 basis points from their lows,” explains Hauser. “There are many investors that are still willing to pay strong prices for a property that fits their investment criteria. This is largely due to Orange County’s economy, which currently boasts a strong job market and low unemployment rate, and future projections are positive. There is some capital, however, that is choosing to sit on the sidelines a bit until it sees what happens in November with the potential repeal of Costa Hawkins. Over my long career, one thing remains the same, there are always more buyers than sellers in Orange County.”
As we move into the second half of the year, Hauser expects to see tight inventory and even decreasing transaction volumes as a result. “Going into the second half of the year I expect sales activity to continue to be slower paced with limited inventory coming to market,” he says. “I say this because we are in the late stages of this long real estate cycle. There are a lot of owners/sellers that have already improved their positions. Now, owners are deciding to sell for individual reasons – ones that are not associated with driving forces of the market.”
Despite the lack of investment opportunities, investment demand is strong—and it is looking for opportunities throughout the market. “Although Orange County is a diverse region, I really don’t see any submarkets that are getting more investor attention than others,” says Hauser. “Although we have had a good amount of new and planned developments, the truth of the matter is that the county is still facing a housing shortage. With that said, investors of all types understand demand continues to be strong across all property classifications and submarkets.”
The good news: many submarkets are supporting new development to increase the supply, which will help to satisfy consumer and investor demand. “The new development is very welcome and long overdue,” Hauser explains. “The progressive cities with the forethought to provide new general plans allowing higher density around employment centers and transportation hubs include Irvine, Anaheim, Tustin, Santa Ana and Fullerton. These cities are helping to create more supply to ease the housing crisis. We are starting to see positive effects with the increased development supply in helping Orange County’s housing shortage. By increasing reasonable supply, creating affordable housing alternatives and improving transportation are the keys to a healthy real estate market.”