Even Though Supply is Lacking Sales Volume Increases by 200 Percent

Let’s look at the amount of increased deal volume in the last 24 months, according to several sources such as LoopNet, CoStar and Real Capital Analytics. According to compiled sales comps, more than 250 multifamily properties ranging from 20 to more than 600 units have sold in the last 24 months. Compared to the prior two years, this number demonstrates an increase in sales volume of more than 200 percent. Sales prices range from $9,000 per unit on the low end of the scale for Class D fully vacant, REO, boarded-up properties to more than $150,000 per unit for several Class A fractured condo complexes that were 100 percent occupied at the time of sale.

Lenders and REO special servicers have taken notice of this trend and have started pricing assets accordingly when they are brought to market through REO disposition programs. Long gone are the days of “lender dumping” of multifamily assets because the market will usually generate offers higher than lender expectation in a matter of days, not weeks or months. Lenders with problematic or physically challenged assets now look to create value internally by holding the asset and correcting the management, physical issue or vacancy problems prior to placing the property on the market. Hence value-add assets are all but gone from the market as lenders or services are creating the value prior to placing assets on the market. This trend has benefited many full-service firms that have the ability and staff to help lenders correct the problems and increase values. This approach has created a tight inventory situation throughout the Tampa Bay region. As lenders continue to hold assets, renovate properties and create internal value, the market continues to tighten and values continue to increase.

Today the market will generate multiple offers in a matter of days for almost any type of product. Whether for Class A or Class D complexes, there is a huge appetite across the spectrum of all multifamily product types. This is not to say that the market has become ignorant to the troubles of the past 6 years but rather that multifamily is currently viewed as the asset of choice by both buyers and lenders. With current Tampa Bay occupancy rates over 94 percent, concessions have become almost nonexistent on many properties. Rent growth has started to show increased velocity in both Class A and Class B properties located in certain infill areas. Both local and national lenders view the multifamily market as a safe investment once again for the origination of new loans. With the federal funds rate expected to stay at its current levels for the next three years, many buyers are looking at the cap rate versus debt cost spread as a deal that is hard to resist.

Buyers of high quality Class A assets in the Tampa Bay region can expect cap rates in the 5.5 to 6.5 percent range, Class B in the 7 to 8.5 percent range, and Class C in the 8.5+ percent range based on trailing six-month P&L statements and current month rent rolls. Pro forma financial statements have started to creep back into brokers’ marketing packages and lenders are once again starting to take notice for turnaround-type assets. In addition, brokers in the Tampa Bay market have once again started to tighten their positions on co-brokerage and astute buyers are offering to pay buyers’ broker compensation to view deals they may not otherwise be introduced too. In order for buyers to be competitive in today’s multifamily market in Tampa Bay (as well as most of the Florida market), they will need to be in a position to act very quickly by placing a competitive LOI near or above asking price with immediate hard escrow money and a 30-day or less all-cash closing. The buyer asking for 30 days of due diligence time and 30 days or more to close does not stand a chance in today market.

— John Burpee, CEO of NAI Tampa Bay