Apartment Investment Market 'Relatively Healthy'

SEATTLE, WA-The apartment investment market is showing signs of life these days, according to the latest apartment market reports from CB Richard Ellis and M/PF Research.

“From an investment standpoint, the volume of transactions is off from a couple recent years in the past; although, national interest (in the Puget Sound area) is good,” says Frank Bosl, an apartment specialist with the Seattle office of CB Richard Ellis. “There’s good interest from both in-state and out-of-state investors from syndicates, to REITS, to institutional advisors.”

Those past years Bosl refers to are 1998 and 1999. According to CB’s research, apartment sales in Puget Sound during the first six months of each of those years flirted with $500 million. Then the first half of 2000 turned dismal, with sales falling to $202 million.

The first half of this year then bounced to $323 million. The report continues by saying if the remainder of 2001 stays strong, sales could total $800 million for the year.

M/PF Research Inc., a Carrollton, TX-based research company, indicates that the majority of the first half’s sales came in the first quarter. “Demand softened in 2nd quarter, with only about 460 net additional units absorbed, compared to the completion of construction on properties totaling 1,133 apartments,” states the report. The Seattle market is “notably tighter now than at the same time a year ago,” it adds, but attributes much of the tightening to “very strong demand seen in late 2000.”

“Given the recent changes in the California market, properties in Seattle are more in favor than they were before,” explains Bosl. He cites the example of San Francisco, where apartments have suffered from the negative employment impact of dead or dying dot-coms. While Seattle has also been hard hit, Bosl says it was not dealt as severe a blow.

M/PF’s Greg Willett appears to agree that Seattle has fared better in some respects in comparison to other major US cities. While Seattle demand has quieted over the past few years, he says, “The good news for Seattle is that cooler demand shouldn’t damage market conditions too much since the apartment construction volume has not been especially aggressive.”

According to CB Richard Ellis, the largest volume of apartment sales in the first half of 2001 was in the Southend, which hit $135 million. That total came from 21 transactions with an average cap rate of 8.96% and an average per-unit price of $58,490.

As for Seattle proper, the report says sales “reached $70 million in the first half of 2001, keeping pace with totals from the end of last year.” The average price-per-unit there was $97,950. The cap rate here averaged 6.65%.

Eastside sales were sluggish, with a volume of $36 million coming in three transactions. The average sales price of $100,285 per unit translates to a cap rate of 7.71%. In the remaining key areas of Puget Sound, Snohomish County saw $47 million in sales, with averages of $67,865 per unit and a 9.02% cap rate. Thirteen sales in Pierce County totaled $33 million, with a per-unit average of $52,852. The average cap rate in Pierce was the highest in the region at 9.47%.