David Dirkschneider, TCN Worldwide Multifamily Group
In the third quarter of 2014, the Oklahoma City multifamily market recorded 11 transactions totaling 1,537 units for a sales volume of $82.4 million. This is an average price per unit of $53,625.
The third quarter experienced a significantly higher sales volume than the first quarter of 2014, increasing 305 percent. The total sales volume for 2014 overall has reached $182.7 million, which is 33 percent lower than the same time period in 2013, when the total sales volume was just over $272 million.
However, the total units sold was down only 11 percent compared to last year, which indicates the quality of assets trading is lower than those properties trading in 2013.
For example, in the first three quarters of 2013, just over $215 million in Class A properties were sold, compared to just over $37 million in 2014. This is an 83 percent decrease in total volume of Class A properties and caused the total multifamily average price per unit to drop by 24 percent.
This is not an indication of values declining. In fact, the opposite is true. Properties that are being fully marketed and that are providing access to as many buyers as possible are fetching prices that are reaching levels not seen since before the recession.
Class C Volume Is Up
The most notable value increase is with the Class C assets. Stabilized Class C assets are actually achieving prices not seen even prior to the recession, and through the third quarter posted an average price per unit of $35,859. Class C distressed assets have an average price per unit of $17,508 at the end of the third quarter, which also has not been seen since before the recession.
In recent years, Class A properties have received most of the spotlight, however the majority of those assets with owners willing to sell have recently traded.
The remaining properties are being held onto, so Class A investors eagerly await the delivery of new construction to bid for their purchase.
At the end of the third quarter, only one Class A property has traded. The price was $37.3 million with 324 units, giving it a price per unit of $114,969. Because there was only one transaction, it’s difficult to conclude this is an “average” price for the Class A market.
Due to the lack of Class A inventory, buyers are forced to look elsewhere, causing Class B assets to heat up. At the end of the third quarter there were a total of eight Class B transactions with 2,040 units and a price of $84.5 million.
This gives the Class B assets an average price per unit of $41,422. However, it should be noted there was one large off-market portfolio sale that was sold for what appears to be well below market price, thereby causing the average for Class B assets to drop dramatically.
Trends In Sale Prices
This time last year, the average price per unit was $52,381, meaning the average has dropped 21 percent. Last year’s number is more closely in line with historic standards.
If this year’s sales were removed from the averages, the adjusted average would be $51,779. Although this is still slightly lower than the 2013 average, it’s more realistically an average price that can be relied upon.
The most notable increase comes from the Class C market, where at the end of the third quarter of 2014 there were a total of 17 transactions and a total volume of $60.9 million, an increase of 35 percent compared to the volume from the same time period in 2013.
Last year there were 1,765 units trading and an average price per unit of $34,507. This average is just over a 50 percent increase from the $22,961 recorded through the third quarter of 2013.
We believe this shows a confidence shift in the Class C assets as distressed assets have mostly flushed through the system and 83 percent of the total Class C properties sold were stabilized, compared to 61 percent at the end of the third quarter in 2013.
The demand for quality Class C assets will continue to increase due to the lack of Class A and B units available. In addition, there is an increased availability of financing and capital for these types of projects.
Going forward, we expect the demand to remain strong and transaction volumes to continue increasing. Although volume is down almost 33 percent in 2014 compared to 2013, the total units sold is only down by 11 percent.
We expect the total unit count for 2014 to surpass the total unit count of 2013, however, the total volume will likely lag behind due to the lack of Class A transactions. We believe there will be continued upward pressure on Class B and C prices for the same reason.
Owners and managers continue to report occupancies are nearing all-time highs, and are therefore instituting regular rent increases, which are seeing very little if any resistance.
New deliveries are continuing to move forward at slightly above historical averages, but are still not able to meet pent-up demand.
Therefore, they should have little to no impact on occupancies or rents. The majority of new deliveries are in areas with significant demand and a lack of housing supply.
The key to achieving record-setting prices is for sellers to be aware of the markets conditions, and to actively put properties on the open market whereby they can solicit bids from multiple buyers.
The market economics have proven those assets sold in off-market type transactions are achieving inferior pricing compared to those professionally marketed to a broad scope of buyers and receiving multiple offers.
— By David Dirkschneider, Director, TCN Worldwide Multifamily Group. This article originally appeared in the December 2014 issue of Texas Real Estate Business.