Multifamily
Yes, interest continues
Posted: July 16, 2014 by John McClelland
Class A multifamily continues to be one of the most favored asset classes both nationally and in Las Vegas. In some U.S cities, capitalization rates are as low as they have ever been, particularly in Tier 1 cities with asking cap rates in the 4% - 6% range.1 Clearly some investors believe that they can push rent growth further. One should be cautious of this approach since there is an incentive to add new supply, which has been constrained by recession era risk aversion by both developers and lenders. Nevertheless, large gaps exist between apparent demand and supply in several key areas in the Las Vegas Valley, noteably in Henderson and particularly in Downtown Las Vegas. We have also noted some high occupancies in Summerlin Class A projects. Well located buildings with North Las Vegas and the Northwest part of the City of Las Vegas are also fairing well.
Additionally, while Valley Wide vacancy rates are higher than national rates (8.9% vs 4.1%), as we segment supply, Class A and B tend do better than Class C, with some of the Downtown buildings presenting some exceptions. An example of Class A/B occupancies, Camden Properties, a REIT, shares building level occupancies in it's Anuual Reports. This offers a pretty good sample of how well operated, mostly Class B buildings have recently been performing. All of these are higher than 90% with several above 95%.
Source: Camden Properties 2013 Annual Report.
Deal volume in Las Vegas continues to be strong. We have examined seven Class A sales taking place year-to-date and a majority of these are trading above $110,000 per door with several at $130,000. Elsian Parc closed for nearly $160,000 per door. In terms of buyer motivation, spreads over tier 1 cities are strong enough to induce some interest in smaller metros like Las Vegas and many believe Las Vegas is on its path towards recovery. This position is understandible given some of the economic data we have observed and several others have commented on.
We are seeing cap rates as low as amost 5% to just over 6% for high quality buildings. In land sales, our firm was recently involved in a well located land transaction that traded for nearly $350,000 per acre. We have seen some as high as $450,000 per acre, or about $30,000 per door on existing entitlements. Clearly there is some aggressiveness towards new development, however we haven't really been adding a lot of supply. Additionaly, tenants we have spoken with are really liking some of the amenity rich buildings that have been built in this generation, of which some more are either planned or under construction, like Elsian at the District or Gramercy in the Southwest. The Dune Portfolio which includes Juhl and The Ogden, One Las Vegas and Loft 5, originally built as Condos, also falls into this category. There also appears to be a growing pool of tenants with many Millenials entering the workforce and some are now stabilizing their lives following school.
We continue to like this sector and we are anxious to participate in even more of these deals.
Sales through May 2014.
1. Cassidy-Turner Summer 2013.