NEW YORK CITY-In spite of a slight uptick in the fourth quarter, 2009 went down in the record books as the worst year for apartment sales volume. Some $14.1 billion in multifamily properties were sold in traditional investment deals last year, according to Real Capital Analytics, with $5 billion of that in the last three months of the year. That’s a 63% drop from 2008′s dollar volume and a significant decline from the $101 billion of properties that changed hands in 2007, the peak year for investment sales. Whereas portfolio deals dominated the prior years’ activity, they were rare in the market last year, with only $1.6 billion in portfolios sold.

The most active players on the buying front were private players, who were responsible for almost three-quarters of all the deals that closed in 2009. Most of those investors were small and local shops, and many of them completed single transactions. Among the most active buyers last year were Behringer Harvard, with 10 new assets worth $483.1 million, and Inland Real Estate Group, with seven deals worth $190.2 million, according to RCA. (Inland has its 2009 acquisition volume for Inland American Real Estate Trust Inc. at 9 assets totaling $201 million.) Some public REITs were also in the market, particularly AvalonBay Communities and Equity Residential. They were the seventh and 10th most active buyers by dollar volume, respectively, having spent $146.4 million on three properties and $127.7 on two assets last year.

Private REITs came in second in terms of activity by a group, accounting for 6% of all multifamily acquisitions. They primarily went after core or traditional deals, avoiding the distressed situations.

At 4%, foreign investors account for a larger-than-usual share of the acquisitions activity. Behringer Harvard’s partnership with Netherlands-based institution PGGM has upped its deal volume—PGGM alone was the second-largest buyer last year, spending $307.5 million on six properties—and the joint venture of UDR and Kuwait is just one of several players observers believe will be snapping up properties on an increasing basis. Foreign investors were also involved in 11% of the distressed apartment sales that occurred, with Canadian and Israeli groups primarily eyeing failed condo projects.

Institutional investors, which completed 17% of all apartment sales in 2008, decreased their presence in the market to just 5% last year. Only one US institution was in the top 10 buyer list for ’09—CB Richard Ellis Investors, with $147.3 million in three deals, was the sixth most active buyer. Last year was the first in a decade that institutions accounted for less than 10% of all deals.

While they may not have made too many appearances on the top buyers’ list, institutions and public REITs emerged as the dominant sellers in 2009. In fact, only one private player—Fairfield Residential, with six sales totaling $202.2 million—was on the top 10 sellers’ list. Many REITs shed properties as part of their effort to raise capital and restructure their holdings. The top two sellers were Aimco, disposing of 65 properties in deals worth $1.3 billion, and Equity Residential, racking up $1 billion in the sale of 58 properties. AvalonBay was number 10 on the list, with five deals with $179.1 million. Institutions took up the other six spots, with Northwestern Mutual Life (13 assets, $733.1 million), BlackRock (19 assets, $509.7 million) and Bank of America (10 properties, $223.8 million) rounding out the top five most active sellers of 2009.

Part of the reason behind the slight surge in deal volume in the fourth quarter was the emergence of increased distressed opportunities, which accounted for one-fifth of all transactions during those three months. Yet in an indication of the discounts such deals can offer, distressed sales accounted for 30% of the total volume, if one were to base it on the number of properties sold.

There is a chance buyers may see more opportunities this year. RCA notes that the amount of properties going into default, foreclosure or bankruptcy greatly overshadows the number of transactions that are actually closing. However, that is if lenders are willing to sell into a down market. Low recovery rates are leading most lenders opt to avoid foreclosure by extending or restructuring debt. And even if they take a property onto their books, lenders are likely to hold onto it until the market improves. By year’s end, the volume of troubled multifamily assets hit $22.7 billion, an increase of more than $16 billion over the prior year.

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