BOSTON—One way to gauge the strength of a property sector is to survey the landscape of who’s investing in it. In the case of Boston multifamily, it’s telling that the sector is attracting strong institutional interest and, as Institutional Property Advisors‘ Philip Lamere pointed out at RealShare Boston earlier this week, strong local interest as well. Outside the center-city core, said Walker & Dunlop SVP Andrew Gnazzo, four of the five largest deals he’s seen lately have come from Massachusetts-based buyers.
Apartment properties locally represent a “great opportunity” on a risk-adjusted basis, said Biria St. John, EVP and partner with CBRE. Not only do the returns outpace those of all other commercial real estate, he added, but Boston’s economy is “very strong” as well.
While investments in urban infill represent the best bet, St. John said, there are also opportunities in the suburbs. He observed that on apartment deals, “We’re not seeing the crazy financial engineering that we saw in the last cycle,” a point on which a couple of his fellow panelists disagreed somewhat.
Paul Natalizio, president of Cornerstone Realty Capital, pointed out that life companies eager to lend on apartment deals are becoming comparatively aggressive when they have to be. And with banks facing competition from the GSEs—who, Gnazzo observed, love Boston—they’re waiving prepayment penalties except in the case of sale, and providing interest-only loans, Natalizio said.
Whether the terms are more conservative or more aggressive, though, the deals are proliferating. Over the course of 20 years in Boston multifamily, “I don’t think we’ve seen such a confluence of private capital come to the market,” said Michael Roberts, SVP of development with AvalonBay Communities.
One reason, said Adelaide Grady, Boston-area director for developer Wood Partners, is that home ownership opportunities in Greater Boston are “so limited.” Therefore, the rental market here is more durable.
In one area of for-sale housing, condominiums, supply is poised for an uptick. Lamere, associate director with IPA, a division of Marcus & Millichap, said condo pricing has crept up “quite substantially.” With just two to three months’ condo inventory in most markets, Lamere predicted that Greater Boston would be seeing either more condo conversions or new development. As it is, St. John said, much of the demand for condos will have to come from either foreign investors or empty nesters.
With rents on the rise along with condo pricing, questions of affordability are driving many would-be renters to discover new markets outside the city itself, said Lamere. Macroeconomically, Roberts aid, “what we’re all waiting for in this recovery is some wage growth.” The rent-versus-owning cost gap is thinning, he added, and what’s needed to take some of the edge off is a recovery in the for-sale housing market.