Insight 17: Get Aggressive Again (Strategically) With Acquisitions

By Jay Parsons, Greg Willett and Carl Whitaker It’s not difficult these days to make the case for investing in apartments. By all accounts, capital is ready and investors are willing. But the question is: What types of apartments do you target and in what markets? The pandemic awakened coastal core investors to the structural underpricing of suburban and Sun Belt assets. It would be a mistake to assume that’s a short-term phenomenon. We made this case in the PREA Quarterly in the pre-pandemic days of Fall 2018. But let’s dive deeper to examine where opportunities will be going forward. 2020 Recap: Deal Flow Slows, Then Re-Accelerates Real Capital Analytics (RCA) reported apartment sales totaling about $143 billion. That’s down 25% from the previous year … but it should also be noted that the previous year hit an all-time high of $191 billion. By comparison, retail building sales dropped 40% during 2020. Office buildings dropped a similar amount at 39% and lastly industrial sales fell about 12%.  Sales activity slowed, of course, in Q2 and early Q3 of 2020 during the height of the lockdowns, when few investors could get out to tour properties. Conditions improved during the fall and heated up in Q4. In fact, RCA data shows that apartment sales in Q4 2020 were actually up 7% compared to the same time period in 2019. Some of that likely includes deals stalled earlier in the year that finally closed, but it also reflects strong investor appetite for multifamily.  What Pricing Correction? Throughout much of 2020, we heard from investors eagerly awaiting the big correction … and they were left on the sidelines with bags of cash. The price correction never came. In fact, cap rates inched down to a record low of 5% by Q4. That drop was driven by demand for suburban and Sun Belt assets, which historically sold at a handsome discount relative to coastal and core. To be fair, some market segments – such as the harde...