1q19 us multifamily capital markets reportaranewmark.com/assets/pdf/1q19-us-multifamily... ·...

1Q 2019UNITED STATESMULTIFAMILY CAPITAL MARKETS REPORT

TABLE OF CONTENTS

3 Key Takeaways

4 Sales Volume

5 Sales Volume by Market

6 Yield Spread

7 Cap Rates

8 Price Per Unit

9 Total Returns

10 Total Returns by Market

11 Top Buyers and Sellers

12 International Capital Buyers

13 International Capital Destinations

14 Effective Rent Growth

15 Effective Rent Growth by Market

16 Employment Growth Matrix

17 Supply and Demand

18 New Supply and Inventory Growth by Market

19 Occupancy Rate by Market

20 Mortgage Debt Outstanding

21 Mortgage Maturities

© NEWMARK KNIGHT FRANK | RESEARCH | 2019 2

KEY TAKEAWAYS

SALES VOLUMEInvestment sales volume totaled $36.4 billion in 1Q19, up 1.3% year-over-year, with over 70% invested in non-major markets. Trailing 12-month sales volume rose8.1% to $175.2 billion. 1Q19 marks the eighth consecutive quarter in which multifamily represented the highest sales volume of all property types.

CAP RATESNationally, cap rates decreased 2 basis points quarter-over-quarter to 5.39%, with major markets increasing 3 basis points and non-major markets decreasing 7basis points. Yields between major markets and non-major markets compressed to 85 basis points, representing the tightest spread since 1Q13.

RENT GROWTHAnnual effective rent growth increased 10 basis points to 3.0%, led by above-average growth in Las Vegas, Phoenix, Orlando, Jacksonville and Tampa. Rent growth was particularly strong in the Class B space, which increased 3.4% year-over-year.

SUPPLY AND DEMANDOver the past 12 months, 301,210 new units have been delivered while 299,310 have been absorbed. Dallas, Los Angeles and New York have added the greatest number of new units over the past 12 months, while Nashville and Charlotte have experienced the largest inventory growth rates at 4.2% and 4.0%, respectively.

INTERNATIONAL CAPITALDirect acquisitions by international capital sources totaled $14.7 billion over the past 12 months, representing a 3.5% increase year-over-year with increasinginternational interest in non-major markets. Canada remains the top foreign buyer of US multifamily, accounting for 49.5% of acquisitions by foreign buyers.

DEBT MARKETSMortgage debt outstanding for multifamily grew $32.2 billion to $1.4 trillion, a 2.4% quarter-over-quarter increase. Debt outstanding for GSE and Life Insurancelenders rose 11.4% and 9.4%, respectively. $124.1 billion of US multifamily mortgage are set to mature in 2019.

© NEWMARK KNIGHT FRANK | RESEARCH | 2019 3

SALES VOLUMEUNITED STATES; DOLLARS IN BILLIONS

Investment sales volume totaled $36.4B in 1Q19, up 1.3% year-over-year. The Southeast and Southwest accounted for 45.6% of all activity in 1Q19. Trailing 12-month investment sales volume rose to $175.2 billion compared with $162.1 billion over the prior 12 months.

4© NEWMARK KNIGHT FRANK | RESEARCH | 2019

Source: NKF Research, Real Capital Analytics

$28.

1

$35.

9

$36.

4

$37.

1 $36.

4

$42.

4 $49.

5

$46.

6

$52.

9

$0

$40

$80

$120

$160

$200

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

1Q 2Q 3Q 4Q

SALES VOLUME BY MARKET12-MONTH TOTALS; DOLLARS IN BILLIONS

Investors gravitated toward non-major markets in 1Q19 with over 70.0% of acquisition volume occurring in non-major markets, with a primary focus on value add. Several markets experienced a strong acceleration in year-over-year sales volume led by Charlotte (58.7%), Philadelphia (43.0%), Tampa (35.9%) and Phoenix (32.5%).



101.2% Year-over-Year Growth



Record High First Half Volume ($2.9 Billion)

SFL$4.3

ATL$7.4

DEN$5.2

LV$2.3

MSP$1.9

NSH$1.8

ORL$3.2

PHI$2.9

PHX$7.2

POR$1.9

RD$2.9

SA$2.4

SAC$1.6

AUS$4.1

DFW$9.2

SF$6.2 DC

$7.7

LA$12.4

NYC$17.0

HOU$7.5

$5.0+ $2.6-4.9

$1.5-$2.5

CHA$3.1

TAM$3.3

CHI$5.3

SEA$5.0

SD$2.6

BOS$2.8

* Major markets: Boston, Chicago, Los Angeles metro, New York metro, San Francisco metro, Washington, D.C. metro. Non-major markets: all other markets.

YIELD SPREADUNITED STATES

Following a volatile 2018 treasury market, in which the spread between cap rates and the 10-year treasury rate tightened to this cycle’s lowest levels, the yield spread in 1Q19 increased 26 basis points quarter-over-quarter to 298 basis points.


Source: NKF Research, Federal Reserve Bank of St. Louis, Real Capital Analytics (Transactions $10 million and greater)

298

5.39%

2.41%

0

100

200

300

400

500

0%

2%

4%

6%

8%

10%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Yield Spread US Multifamily Average Cap Rate 10-Year Treasury Rate

CAP RATES12-MONTH AVERAGE

Cap rates compressed marginally, down 2 basis points quarter-over-quarter to 5.39% nationally. Over the past 12 months, cap rates in non-major markets have compressed 7 basis points due to heavy competition for suburban value-add product, while expanding 3 basis points in major markets.


Source: NKF Research, Real Capital Analytics (Transactions $10 million and greater)

5.39%

4.72%

5.58%

0%

2%

4%

6%

8%

10%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

United States Major Markets Non-Major Markets


PRICE PER UNIT12-MONTH AVERAGE; DOLLARS IN THOUSANDS

The average price per unit increased 4.4% year-over-year to $168,736 in 1Q19. Non-major markets experienced the largest growth in pricing at 7.0%, compared to just 1.3% for major markets.


Source: NKF Research, Real Capital Analytics (Transactions $10 million and greater)

$169

$301

$142

$0

$75

$150

$225

$300

$375

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

United States Major Markets Non-Major Markets


TOTAL RETURNSANNUALIZED

As of 1Q19, total returns for all apartments declined to 5.9% based on appreciation and income. However, garden apartments (primarily located in the suburbs) continue to outperform the overall apartment sector by 270 basis points – and have been the best performing subtype since 2014.


Source: NKF Research, NCREIF

2010 2011 2012 2013 2015 2016 2017 2018 2019

20.6% 16.4% 12.7% 10.7% 10.9% 11.7% 8.0% 6.7% 6.4% 6.0%

19.7% 14.9% 11.1% 10.2% 9.6% 10.6% 6.1% 4.7% 4.7% 4.7%

2014

LOW RISE

HIGH RISE

16.8% 16.0% 10.9% 10.7% 11.3% 14.6% 9.5% 8.9% 8.9% 8.6%GARDEN

18.2% 15.5% 11.2% 10.4% 10.3% 12.0% 7.3% 6.2% 6.1% 5.9%ALLAPARTMENTS

TOTAL RETURNS BY MARKETSELECT MARKETS

Total returns in several outperforming markets accelerated year-over-year, including Austin, Boston, Houston, Phoenix, Raleigh-Durham, San Jose and Washington, D.C.


Source: NKF Research, NCREIF

6.8%

7.8%7.2%

6.1%

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3.9%

7.3%

7.3%

6.5%5.9%

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3.6%

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7.8%

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7.8%

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7.0%

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7.9%

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9.3%

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11.0%

4.4%

13.3%

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8.0%

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7.6%

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1-Year Total Returns 2-Year Total Returns

TOP BUYERS AND SELLERS12-MONTH TOTALS; UNITED STATES; DOLLARS IN MILLIONS

Brookfield, Greystar and Blackstone have been the top buyers over the past 12 months with several large portfolio and entity-level transactions. Among the largest entity-level sellers were Forest City and EdR, while Lone Star disposed of a series of suburban workforce housing portfolios predominately in the Northeast and Mid-Atlantic.



$0

$1,500

$3,000

$4,500

$6,000

Brookfield Greystar Blackstone Nuveen HarborGroup Int'l

GoldmanSachs

FPAMultifamily

CarrollOrg

NexpointRes Trust

AmericanLandmark

WatertonAssociates

RelatedCompanies

MorganProperties

Bridge InvGroup

PGIM RealEstate

Top Buyers

$0

$1,500

$3,000

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EdR Lone Star Greystar FairfieldResidential

StarwoodCapital

Blackstone GoldmanSachs

TrammellCrow Res

AvalonBay IvanhoeCambridge

CarmelPartners

Aimco SimpsonHousing

WoodPartners

Top Sellers

Single Asset Portfolio & Entity

INTERNATIONAL CAPITAL BUYERS12-MONTH TOTALS



BY COUNTRY

Canada49.5%

Netherlands14.4%

Bahrain8.3%

Singapore5.7%

UK4.5%

Japan4.0%

Germany3.0%

Other10.6%

Direct acquisitions by international capital sources totaled $14.7 billion over the past 12 months, representing a 3.5% increase year-over-year. Canada remains the top buyer of US multifamily, accounting for 49.5% of acquisitions by international capital sources, however interest from investors from the Netherlands and Singapore is growing.

TOP BUYERS (DOLLARS IN MILLIONS)

$299

$331

$342

$349

$373

$385

$609

$835

$1,092

$5,936

Hasta Capital (Mexico)

H&R REIT (Canada)

Akelius Residential (Sweden)

Western Wealth Capital (Canada)

Allianz (Germany)

Starlight Investments (Canada)

PGGM (Netherlands)

CapitaLand (Singapore)

Investcorp (Bahrain)

Brookfield (Canada)

INTERNATIONAL CAPITAL DESTINATIONS12-MONTH TOTALS

While international capital sources historically have looked to “safe haven” major markets, investment into non-major market continues to rise as international firms have poured capital into growing markets throughout Florida, Texas and Denver.



MAJOR MARKETS 46.2%

BY MARKET TIERAs a % of Cross-Border Capital

BY REGIONAs a % of Cross-Border Capital

NON-MAJOR MARKETS 53.8%

MID-ATLANTIC 9.6

MIDWEST 9.3%

NORTHEAST 12.7%

SOUTHEAST 22.8%

SOUTHWEST 23.9%

WEST 21.7%

ATL$517M

BOS$575M

CHI$624M

DFW$499M

DC$1.0B

DEN$694M

HOU$344

LA$1.4B

NYC$2.5B

ORL$137M

PHX$319M

RD$220M

SF$555M

SEA$452M

SFL$73M

TAM$710M

CHA$84M

AUS$515M

LV$200M

POR$180M

HI$288M

SD$145M


PHI$284M

EFFECTIVE RENT GROWTHANNUAL; UNITED STATES

Annual effective rent growth rose 10 basis points quarter-over-quarter to 3.0% nationally. At 3.4% effective rent growth, class B is the best preforming class – and has been over the past 3 years, averaging 3.3% rent growth compared with 2.7% for class A and 3.0% for class C.


Source: NKF Research, Axiometrics

-8%

-4%

0%

4%

8%

12%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

US Average Class A Class B Class C

EFFECTIVE RENT GROWTH BY MARKETANNUAL; SELECT MARKETS

Over the past 12 months, rental growth was strongest in Las Vegas and Phoenix, as well as a host of markets in the Southeast including Orlando, Jacksonville, Tampa and Orlando, all of which have experienced above-average employment growth.



7.0%

6.6%

5.4%

4.9%

4.5%

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4.2%

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3.7%

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US Annual Average Effective Rent Growth = 3.0%

EMPLOYMENT GROWTH MATRIXSELECT MARKETS

While New York has added the most jobs over the past 12 months, employment growth has been strongest in Orlando, Dallas and Phoenix. Total non-farm employment increased 3.7% in Orlando year-over-year, while Dallas saw an increase of 3.0%, followed by Phoenix with 2.8%.


Source: NKF Research, U.S. Bureau of Labor Statistics

Atlanta

Austin

Boston

CharlotteChicago

Columbus

Dallas

Denver

Houston

Las Vegas

Los Angeles Miami

Nashville

New York

Orlando

Philadelphia

Phoenix

Portland

Raleigh-DurhamSan Antonio

San Diego

San Francisco

San Jose

Seattle

TampaWashington, D.C.

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

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YEAR-OVER-YEAR EMPLOYMENT GROWTH

SUPPLY AND DEMANDUNITED STATES

64,280 units were delivered in 1Q19, compared to 21,477 absorbed. Over the past 12 months, 301,210 new units have been delivered, while 299,310 have been absorbed. Year-over-year, inventory growth has decreased 10 basis points year-over-year to 1.6%.



0%

1%

2%

3%

4%

5%

0

100,000

200,000

300,000

400,000

500,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1Q19

New Supply Demand Inventory Growth

NEW SUPPLY AND INVENTORY GROWTH BY MARKET

On a nominal basis, Dallas, Los Angeles and New York have added the most new units over the past 12 months, while Nashville and Charlotte have experienced the largest inventory growth at 4.2% and 4.0%, respectively – compared to the national average of 1.6%.



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12-MONTH TOTALS; SELECT MARKETS

OCCUPANCY RATE BY MARKET12-MONTH TOTALS; SELECT MARKETS

The national annual average occupancy rate rose 10 basis points quarter-over-quarter to 95.5%, led by Minneapolis.



97.1

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96.9

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96.6

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96.5

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96.4

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96.3

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96.2

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US Annual Average Occupancy Rate = 95.5%

MORTGAGE DEBT OUTSTANDINGUNITED STATES

Mortgage debt outstanding for multifamily grew $32.2 billion to $1.4 trillion, a 2.4% quarter-over-quarter increase. Debt outstanding for GSE and Life Insurance lenders rose 11.4% (or $68.8 billion) and 9.4% (or $6.9 billion), respectively.


Source: NKF Research, Mortgage Bankers Association

DEBT OUTSTANDING BY GROUP AS A PERCENTAGE DEBT OUTSTANDING BY GROUP IN BILLIONS

GSEs49.5%

Banks & Thrifts 31.6%

Government6.6%

Insurance Companies

5.9%

CMBS3.2%

Other3.2%

$675

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State & LocalGov't

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MORTGAGE MATURITIESUNITED STATES; DOLLARS IN BILLIONS

$124.1 billion of US multifamily mortgages are set to mature in 2019. Nearly $695 billion of additional mortgages are set to mature between 2019 to 2023 - $513.7 billion of those being from other lenders (primarily GSE).


Source: NKF Research, Federal Reserve, Trepp

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$43$51 $55 $57 $54

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2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Banks CMBS Insurance Companies Other (Primarly GSE)

$693.3 Billion

NEW YORK CITYHEADQUARTERS125 Park AvenueNew York, NY 10017212.372.2000

Newmark Knight Frank has implemented a proprietary database and our tracking methodology has been revised. With this expansion and refinement in our data, there may be adjustments in historical statistics including availability, asking rents, absorption and effective rents.

Newmark Knight Frank Research Reports are also available at www.ngkf.com/researchAll information contained in this publication is derived from sources that are deemed to be reliable. However, Newmark Knight Frank (NKF) has not verified any such information, and the same constitutes the statements and representations only of the source thereof, and not of NKF. Any recipient of this publication should independently verify such information and all other information that may be material to any decision that recipient may make in response to this publication, and should consult with professionals of the recipient’s choice with regard to all aspects of that decision, including its legal, financial, and tax aspects and implications. Any recipient of this publication may not, without the prior written approval of NKF, distribute, disseminate, publish, transmit, copy, broadcast, upload, download, or in any other way reproduce this publication or any of the information it contains.

Jeff DayPresidentHead of Multifamily Capital [email protected]

Blake OklandVice ChairmanHead of Multifamily Investment [email protected]

Mike MayVice ChairmanHead of Multifamily Debt & Structured [email protected]

Sharon KaraffaSenior Managing DirectorHead of Multifamily Strategy [email protected]

Jonathan MazurSenior Managing DirectorNational [email protected]

Mike WolfsonDirectorCapital Markets [email protected]

Sean MarmoraResearch AnalystMultifamily [email protected]

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