Sule Aygoren Carranza is managing editor of Real Estate Forum.

NEW YORK CITY-Despite all the talk of a slowdown, apartment sales volume closed out 2007 with a bang–that is, on the surface, at least. A look deeper into year-end data from Real Capital Analytics Inc. proves that investors did indeed hold off on making purchases as the capital markets tightened up.

By the numbers, $36.4 billion in deals closed during the fourth quarter brought the year’s total volume to a record $98.6 billion–an 8% increase over 2006. However, a bulk of that Q4 number is attributed to the $22-billion purchase of Archstone-Smith by Tishman Speyer Properties, Lehman Brothers and Bank of America, which closed in October.Taking that privatization out of the equation, fourth-quarter deal volume actually declined 60% over the same period in 2006. Further, total 2007 sales would be nowhere near that of the prior two years.

Broken down, some 837,000 units in slightly more than 4,000 communities changed hands last year (in deals worth $5 million or more). By those figures, investment activity actually fell by 10% last year, as did the number of transactions. Of the deals that closed, 250 were portfolios and 2,600 involved individual assets.

With nearly $8 billion in deals, Manhattan was once again the most active market. That figure is 20% less than the volume of 2006, but, RCA notes, that’s because the $5.4-billion sale of Peter Cooper/Stuyvesant Town. Without that deal, Manhattan’s year-over-year sales would have increased by more than 70%. Rounding out the top three markets by acquisition volume are Los Angeles ($6.2 billion in total sales volume) and Northern Virginia ($5 billion).

Notably, sales skyrocketed in the mid-Atlantic area, with 295 properties changing hands in deals worth a total of $13.1 billion, a 57% increase over 2006. Washington, DC alone saw its sales volume rise 1,425% over the year to slightly more than $1.4 billion. And interestingly, almost every market in California experienced upticks in activity–Los Angeles (a 77% increase over 2006), Orange County (79%),) San Diego (98%), San Francisco (25%) and San Jose (115%).

Conversely, once-hot for-sale markets saw activity decline. Volume dropped across most of Florida, including Broward County (-19%), Jacksonville (-44%), Miami (-68%), Orlando (-39%), Palm Beach (-38%) and Tampa (-53%). Meanwhile, Las Vegas, Phoenix and Dallas saw decreases of 22%, 8% and 20% respectively.

The good news for buyers is that the rapid price appreciation for multifamily properties seems to have stopped. Citing the Moody’s/REAL CPPI index, RCA relates that appreciation of apartments experienced a sharp rise in the first quarter, leveled off in the second and turned negative in the third. The average price of a garden apartment community fell to $88,000 per unit in the fourth quarter from $92,000 per unit a year prior and a peak of $96,000 a unit at the end of 2005. Per-unit prices for mid- and high-rise assets saw a steeper decline–$175,000 per unit in the fourth quarter versus a peak of $250,000 at year-end 2006.

Cap rates are on the rise as well, though they haven’t climbed as high as other property types. A weak housing market is benefiting buyers, who can also turn to Fannie Mae and Freddie Mac for debt. Although cap rates are at or below interest rates now charged by conduit lenders, RCA notes that recent quotes from the agencies are “an attractive” 5.15% to 5.25%.

In the primary markets, average caps at 50 basis points high than in early 2006, when condo converters exited the market. Based on price per unit, pricing in primary markets is at a record high due to sales of trophy properties in high barrier-to-entry coastal markets. Average cap rates in Manhattan, Washington, DC, San Francisco and Orange County, CA all boast caps of less than 5%.

For garden apartments, markets in California including Los Angeles, San Diego, the East Bay and the Inland Empire have caps in ranging from 5% to 5.5%. Meanwhile, cap rates in inland growth markets like Atlanta, Phoenix, Denver and Las Vegas now range from 5.5% to 6%. Dallas and Houston, says RCA, offer the most attractive yields at around 7%.

For now, the concern is that the number of properties on the sales block will increase as the pace of closings slows. “However, very few sellers appear to be pressured at this point into taking a significant discount in price,” say RCA researchers. “With one notable exception, delinquencies and defaults remain low.”

Going forward, the firm says, buyers of apartment properties must be cognizant of their investment strategy relative to other opportunities, given the uncertain economic outlook and the credit crunch, which could lead to another re-ranking of property types and markets. Sales activity, RCA notes, is on an upswing since many believe that the slowdown in the for-sale housing market will push households into traditional multifamily product, improving rents and occupancies.

The firm also advises multifamily investors to increasingly look outside the US for opportunities. While only three of the top 20 most active markets for apartment acquisitions globally are outside of the US, RCA analysts state, “this belies attractive development opportunities in Asia and other developing markets. Cross-border investment is growing quickly, with many US buyers leading the way. Foreign investment in the US is also gaining and the weak US dollar could facilitate this trend. Compared to prices in other global cities, even Manhattan prices look reasonable.”