US Multifamily Investments Enjoy Strong Second Quarter Sales

The US Multifamily Investment Market enjoyed a strong bump in second quarter sales over a year ago. $23 billion in apartment assets traded in the first half of 2011 -- a $104 million year-over-year improvement from 2010. Click here to read the full story.

National Apartment Market Revenues Soar 2.5% 2nd Quarter

The U.S. apartment sector turned in a near-record revenue growth performance in the second quarter of 2011, according to the preliminary results from MPF Research’s 2nd quarter 2011 survey of more than 6 million apartment units across the country.

Seattle One of the Nation's Hottest Multifamily Markets

Although its overall vacancy rate continues to lag behind Portland,  Seattle is experiencing exploding transaction numbers and an increase in construction.  Read more in Multifamily Executive.

MPF Research: We're Nowhere Close to Overbuilding in Multifamily

The Census Bureau released June’s building permit info earlier this week with news that permits were issued for 20,000 units in buildings with five or more units.  It was the first time the monthly number has hit that 20,000-unit mark since October 2008.  Worried we're going to overbuild? MPF research has two words for you: "Chill out." Read More . . .

America to Become "Society of Renters" - Morgan Stanley

Political deadlock mixed with terrible housing market conditions will eventually turn America into a society of renters, according to the latest Housing Market Insights report from Morgan Stanley.  Read More. . .

Freddy Lunt of Princeton Property Management Discusses Multifamily Operating Trends for Portland Metro

Freddy Lunt, owner of Princeton Property Management, discusses current income and expense trends for the Portland metro apartment market.

Apartment and Condo Construction Jump in June

The Washington Post reported today that Apartment and condo construction is the driving force in a 14.6% surge in home building in June. Read More > > >

Hot Rents: Portland Ties Austin for Nation's 5th Hottest Rent Growth Market

What a report card [Portland]! Another quarter, another round of impressive rent fundamental numbers in the apartment sector, with rent growth continuing, particularly increasing its pace in secondary markets as occupancies return to pre-recession highs. The inclusion of May and June—the beginning of peak rental season—in Q2 numbers makes mid-year data all the more significant, and reports from Carrollton, Texas-based MPF Research and Dallas-based Axiometrics show cause for optimism with continued buoyancy in effective rent growth and apartment occupancy across the country.  Read More. . .

National Trends: US Apartment Vacancies Reach 3-Year Low

Rent increases replaced landlord giveaways as U.S. apartment vacancies dropped in the second quarter to the lowest in more than three years, bolstered by rising demand on the West Coast, according to REIS Inc. Read More...

Test Your Cap Rate Knowledge!

What is a cap rate? It is simply the net operating income (NOI) of the property (before any debt service) divided by the price and it equates to a percentage rate of return if the investor were to purchase a property with no debt (all cash).
Example: NOI = $100,000, Price $1,200,000 CAP rate = $100,000/$1,200,000. Result: Cap Rate = 8.3%.

Supply and demand and the cost of debt are two factors that affect cap rates in a market place. The cap rate is one of the primary determinates of pricing for investment property and there is a direct correlation between market cap rates and current available interest rates for debt on investment property. When interest rates are lower than cap rates, we end up in what we call a positive leverage market; the more you borrow the higher your return on investment will be.

When interest rates are greater than cap rates, we are in what we call a negative leverage market scenario; the more you borrow against a property the lower your rate of return is on the investment.

It is also important to understand that the primary advantages of real estate over other investment types are leverage and tax advantages. Most real estate investors want leverage as much as possible as most of the advantages in owning real estate come with leverage. Just like in any other investment type, real estate is driven by supply and demand. Investors in real estate normally have a certain threshold of investment return they are willing to accept depending on the asset and the current market.

As interest rates decline and the cost to borrow decreases investors are willing to accept a lower rate of return on their cash because other investment vehicles offer lower returns.
As interest rates decline, two market forces working to drive an increase in real estate prices: (1) Cap rates are decreasing with interest rates and (2) Investors are willing to accept a lower rate of return on their money.

Conversely, in a rising interest rate environment, the opposite is true. When there are more options for investors to achieve a greater rate of return and the cost of debt increases, cap rates increase and reduce the price an investor is willing to pay for an asset.
In conjunction with these effects, the market also plays an important role in CAP and interest rates. The higher market demand is in a particular market, the lower CAP rates tend to be.
Lower cap rates have a positive affect on prices. Alternatively in a weaker market with lower demand, cap rates rise and values decrease.
Portland/Vancouver Metro Area Median CAP Rates for Apartments 2001-2010
2001 8.21%
2002 8.30%
2003 7.60%
2004 7.20%
2005 6.60%
2006 6.30%
2007 6.10%
2008 6.10%
2009 6.80%
2010 6.80%

Tim O’Brien is a partner at HFO Investment Real Estate. He can be reached at 503-241-5541 or by e-mail at tim@hfore.com.

Axiometrics: National Apartment Market Pushes Toward 6.0% Annual Effective Rent Growth

Axiometrics Inc., a provider of data and analysis on the multi-family housing sector, announced last week that the national apartment market continued to heat up in May, with effective rents (rents net of concessions) increasing 0.70% from April levels. Based on results year-to-date, Axiometrics estimates that effective rents will rise 5.9% in 2011, which would be the largest annual increase since a rate of 5.8% in 2005.  Read More > > >

Reports: Apartments Show Strong 2nd Quarter, Positive Growth Forecasts for 2011 and 2012

Morgan Stanley is forecasting strong 4.4% and 6.8% same-store revenue growth for the apartment REITs in 2011 and 2012. Meanwhile, MPF research reports that second quarter apartment market revenues increased 2.5% nationwide. Click here to read more.