MF Analysis: More Transactions in 2010

DALLAS-A shrinking buyer-seller gap, combined with investors tired of waiting on the sidelines could mean more trades of quality multifamily in 2010. Experts tell GlobeSt.com that both buyers and sellers throughout the Dallas-Fort Worth area are aware that the market is close to bottom, or there already.

Will Balthrope, vice president investments and senior director with the Dallas office of Marcus & Millichap Real Estate Investment Services’ multifamily group says he noticed a seismic shift in investor interest since October. He pointed out that demand was huge when he and partner Ryan Epstein recently marketed the 258-unit Delante in Irving, TX. The high-end, mid-rise product attracted 44 offers, with Slosburg Cos. of Omaha, NE ending up the buyer. “This is a good example of a mid-rise luxury apartment, snapped up by an investor, without a loan, which closed in 26 days,” Balthrope comments.

Balthrope and Jay Gunn, associate partner with Hendricks & Partners Dallas office, agree that buyers had been sitting on the sidelines, fearful of entering the market when values were on the way down. But with the values reasonable these days, “we’re seeing a tremendous amount of capital looking for investments,” Gunn points out. “There’s a bunch of money out there and ready to make a move. But we still don’t have the product to provide.”

The most desirable product for these buyers are class A assets, good locations, built no later than 1990. Gunn says the reason why a lot of this product is being held back is because the sellers are trying to hang onto the assets as long as they can. This is the case, especially with the distressed assets.

“The sponsors and ownership groups are making every effort to maintain the assets, whether it involves trying to raise additional equity or finding partnerships to stave off bankruptcy,” Gunn comments.

Still, with the buyer-seller gap shrinking to 10% and less, Balthrope predicts more of these assets are likely to make it to market – and be snapped up – during 2010. “There isn’t as many ‘let’s take it around the block and see what happens’ attitudes from the sellers any more,” he comments. “And buyers who see quality products out there understand the gap isn’t as large as it was.”

But the $600 billion question, he continues, is whether distressed assets will finally hit the market. Not a whole lot has hit the market to date, but Balthrope is frankly skeptical of the idea that 2010 will see a tsunami of these products flood the market. “There will be an increase,” he predicts. “But it’ll be more like a steady drizzle rather than a tsunami.”

Gunn points out that more distressed assets will likely filter through the system in 2010, though lenders are more willing to work with borrowers these days than in the past. But both brokers agree that transaction volume will definitely pick up in 2010. “A lot of buyers believe that the timing will be there to take a little more risk on the acquisition side. We’ll see more aggressive plays than we have in the past,” Gunn comments.

Balthrope agrees, suggesting that many of these buyers are actually looking toward 2011. “There is very strong evidence that 2011 will be an outstanding year,” he comments. “We’ll see maybe one more year of poor performance, then we’ll see rents taking off. Investors understand that if they wait too much longer, the recovery will be underway, and prices won’t be as good as they are now.”