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Sule Aygoren Carranza is managing editor of Real Estate Forum and editor of Multi Housing forum, from which this article is excerpted.

Boston—On the surface, it appears the recovery in the US apartment market has flatlined. However, Property and Portfolio Research reports that a closer look at the statistics shows several cities seem to have reached a “turning point.”

The vacancy rate for the largest 54 markets covered by the locally based firm remained relatively unchanged between the first and second quarters, at 5.8%. That stagnancy may be misleading, however, since many cities saw a steady uptick in vacancy rates between the end of 2006 and the end of June.

Whereas 19 markets posted rising multifamily vacancies in the fourth quarter of last year, that figure jumped to 29 markets in the second quarter. The largest increases were in cities that were most affected by the condominium boom. Orlando, for instance, saw vacancies shoot up by 90 basis points to 5.2% between the first and second quarters of the year. The same holds true for Tampa, West Palm Beach and the East Bay, FL, as well as Las Vegas and Phoenix.

However, cities like Denver, Columbus, OH and Portland, OR, with few condo conversions, healthy demand and low inventory levels, are showing continued improvement.

Meanwhile, stagnant vacancies mean landlords have been forced to put the brakes on rent increases. Quarterly rent growth across the board appears to be peaking, with a 1.3% rise between the first and second quarters. The strongest gains, say the firm’s researchers, are happening now. Going forward, expect performance in the market to be moderate, PPR says.

Similar conditions are noted on the investment front. Real Capital Analytics reports that the $38 billion in property sales that took place during the first half of the year was off 8% in terms of dollar volume from the same period in 2006. The figure also was a 10% difference in terms of the number of properties that changed hands. This, says the New York City-based company, is likely the result of the volatility in interest rates, which have affected some investors’ ability to obtain capital.

Phoenix saw the highest sales volume in the first half, with $2.3 billion, a 5% increase over the prior month. The market’s average yield was 5.5% and price per unit was $98,000. Coming in second was Atlanta, with $1.5 billion, down 19% from the prior year (6.1% cap rate, $74,000 per unit average). Rounding out the top three was Dallas, which had $1.4 billion in sales during the first six months of the year. That’s a 15% year-over-year decline for the market, which had an average cap rate of 7% and price per unit of $61,000.

Of the $29-billion worth of sales under contract, some $22 billion of it is related to Tishman Speyer‘s acquisition of multifamily REIT Archstone Smith. “It remains to be seen whether this deal will be the shot of adrenaline needed to propel the apartment sector the same way Equity Office invigorated the office sector in the first half of the year,” note RCA analysts.

Rising interest rates have apparently lit a fire under a lot of sellers during the second quarter, as a record $20-billion worth of apartments were put on the market. During the entire first half, new offerings amounted to $33 billion, marking a 12% increase compared to the first six months of 2006. Despite new properties available, the price per unit or average cap rates have been little affected in general. However, notes RCA, “There is evidence of a cap rate uptick in June, mirroring the recent rise in mortgage rates.”

Garden apartments around the country were trading at approximately $86,000 per unit, somewhat unchanged from last year, and down 10% from its peak in 2005. The average price for mid- and high-rise communities in the second quarter came in at $187,000 a unit, though that number has varied greatly over the past few of years based on the composition of assets sold. Despite the flatness in pricing on a national level, record high prices for apartment assets have been reported in 20 of the top 100 markets this year.

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