Virtually Unstoppable

Less than a decade ago, the American Dream was home ownership. Then came the subprime collapse, followed by the Great Recession and, subsequently, plunging home values and tightened credit standards. Three years after the great credit freeze of 2008, single-family home ownership has sunk to between 64% and 66%, and the American Dream has turned into a nightmare for many.

Enter multifamily. During 2011, the abundance of interested buyers of multifamily product was outmatched only by the abundance of renters. Peter Muoio, principal with Apartment Realty Advisors’ ARA Research in New York City, tells it by the numbers. Vacancies in 2011 dropped 200 basis points year-over-year, while effective rents ended up well above pre-recession levels. Along those lines, homeownership has declined approximately 200 basis points, and according to Muoio, every 100-basis-point change in the ownership rate accounts for “about 1.2 million households that are shifting where they’re living.”

Bank of America Merrill Lynch’s October 2011 report demonstrated similar positive numbers, noting that revenues per available unit were up 6.3% year-over-year in the top 20 metropolitan US markets. The report also pointed out that October occupancy had increased 60 bps over the year, as had effective rental rates, which were up 5.6%.

All of this means increasing investment activity. Real Capital Analytics’ third-quarter 2011 review pegged overall sales volume at $13.3 billion during the quarter, complete with cap rate compression acceleration. Current trade volumes, RCA noted, returned to 2004 levels—in other words, before everyone went condo-conversion crazy. Given everything, it’s no wonder that four institutions are said to be bidding on all, or part, of the reportedly up-for-grabs Archstone portfolio (the most recent of which is Sam Zell’s Equity Residential), which is currently being held by various lending institutions.

To read the rest of the story, visit the December 2011 issue of Real Estate Forum.