Multifamily mania

You only need to look at the number of distressed developers in the US to realize the country's residential sales market is taking a bit of battering in the wake of the subprime crisis. On the flip side, however, the multifamily market is proving fertile ground for private equity real estate firms.

Northland Investment Corporation's $270 million acquisition of nine multifamily properties in Austin, Texas, is just one example of the booming market despite the overall slowdown in the residential market. The Newton, Massachusetts-based firm scooped up the 2,985 apartment units at the end of August – believed to be the largest multifamily deal to date in the Austin market.

According to the firm's chief investment officer, David Morency, it's the children of the baby boomers – the echo-boomers as they have been dubbed – that are helping fuel demand. First-time homebuyers are “tentative” about jumping into single-family home ownership at a time when “pricing uncertainty is still prevalent in the market,” he said.

Northland is not the only firm that's been quick to act in the sector though. In September, Boston-based private equity real estate firm TA Associates Realty paid $118 million for a two-property multifamily portfolio in Orlando, which included 1,042 units, in what was billed as the biggest multifamily transaction in the Florida city this year. A month earlier, Urdang – the real estate investment arm of BNY Mellon Asset Management – partnered with California-based multifamily specialist, The ConAm Group of Companies, to acquire a 456-unit apartment block in Sacramento, California.

However for all the opportunities being presented there also appears to be a cautiousness among investors for multifamily, following news that the REIT, AvalonBay's latest multifamily real estate fund, AvalonBay Value Added Fund II, closed under target. The firm closed on $333 million of equity commitments in September, against a target of $500 million.

“Right now, multifamily in certain markets is particularly strong,” said Morency, focusing on markets such as Austin, which has been an “alternative to Silicon Valley” in terms of lifestyle and pricing. In Austin, the growing high-tech industry base and area universities have kept the “population moving into Austin and greater Austin” with a 95 percent occupancy rate over the past few years. Markets such as Phoenix, Las Vegas and certain markets in Florida are softer markets, Morency added, due to factors including an oversupply from condo conversions, overbuilding of single family homes and condominiums. However, “the broader trends are supporting multifamily,” said Morency.