The Portland multifamily market continues to slowly improve in spite of the unemployment rate stalemated at 10.6 percent — now entering its 10th month. When Portland headed into the recession, many believed its multifamily market would experience a similar plight to that seen in the Southern California and Arizona multifamily markets. It certainly dipped, but fortunately didn’t hit their low values estimated to be 50 to 60 percent below the original prices for some properties there.
Rents have returned to pre-recession levels, concessions temporarily came into the market and net operation income went down, causing apartment values to decrease between 15 to 20 percent. But through the worse of the recession, and even today, vacancy has held around 5 percent. However, it should be noted that in some pockets of the Portland market, like Gresham, certain areas of Beaverton and outer Hillsboro submarkets, vacancies are somewhat higher.
At first glance, when comparing Co-Star year-to-date multifamily sales numbers (August measure for transactions ≥ $1 million) of $196 million with $116 million in 2009, it appears that transaction sales numbers are up by 59 percent. Yet, on closer inspection, a different story emerges. Since the beginning of the year, there have been a total of 28 sales for $196 million, with only five of the sales at $15 million or greater. (totaling $140M of the year-to-date sum). From there, the size of sale drops to $6 million or less, accounting for the remaining $56 million.
For a better perspective, one needs to go back to the numbers from the same time the past 2 years. In 2009, there were 35 sales for $116 million with only two large sales of $15 million or more, so there was a lot more sales activity going on in smaller properties of $6 million or less. In 2008, during the same time period, there were 79 sales for $1 billion. Twelve of these were for $15 million or more for a total of $341 million. One can see there continues to be a drop in the number of sales, as well as values.
The December 2009 sale of Gerding Edlen’s 352-unit Cyan/PDX to Behringer Harvard Multifamily REIT I for $65 million or $184,659 per unit, according to Costar ( with only 40 percent of the building leased at the time of the sale), shows that Portland is very much on the radar of the large national real estate companies and institutional investors. Dallas-based Behringer Harvard Holdings REIT, which also purchased 188-unit Tupelo Alley this summer, definitely has seized the opportunity to purchase new, well-located properties at a discount. As one long-time local multifamily asset manager aptly says, “Both properties bought by Behringer Harvard were definitely priced at ‘price per pound’ levels.” (Both sales are believed to be below replacement costs.)
Presently the largest multifamily asset currently listed for sale in Portland is the 23-story, 332-unit Ladd Tower. Completed by Opus Northwest in spring 2009, the building was 80 percent leased as of early July. According to a recent article in The Oregonian, the construction loan for the Ladd Tower is believed to be in excess of $80 million. It will be interesting to see if the final sales price for this property is able to achieve the $241,000 per unit cost required to cover the cost of the loan.
Multifamily permits dropped off rapidly in 2009 with only 235 units permitted within the city. This is well below the yearly average of 1,982 permits issued between 2000 and 2008. Granted, much of this increase was due to the construction of large condominium and luxury apartment towers within the Pearl District, downtown and South Waterfront area. Today, many of these properties make up the 3,000-unit shadow market that flooded the market in the past couple of years. The continued decrease in multifamily building units and the continued increase of in-migration, which averages 21,000 annually according to Portland State University’s Population Research Center, will definitely impact supply in the future.
Overall, Portland’s multifamily market is slowly improving. Concessions for the most part have left the market. Owners who figured out that it was better to charge at market or slightly below market rents instead of offering concessions, are keeping their tenants in place. When turnovers do occur, many owners are now able to slowly increase rents (from $10 to $25 a unit). Banks still appear to be struggling with cutting loose their distressed assets.
Other trends benefiting the multifamily market include: 1) tighter mortgage standards, which prevent a number of renters from becoming homeowners; 2) uncertainty with the single-family housing market; 3) Portland’s continued high unemployment; 4) more investor/buyers are in the market, who are looking at properties with reasonable cap rates; and finally 5) the inability of apartment developers to obtain construction loans.
— Beth DuPont is principal broker at Winkler & DuPont Apartment Brokerage in Portland.