The Real Deal Miami

Investors go beyond Class A properties

March 04, 2011 01:40PM

As demand for rental housing surges throughout the country, investors are venturing beyond Class A properties, or newer, well-leased buildings in centrally located neighborhoods of big cities, Bloomberg News reported. According to Real Capital Analytics, sales of apartment building rose 96 percent to $33.7 billion in 2010 from a year earlier. Class B properties and distressed acquisitions accounted for 33 percent of sales in the fourth quarter, compared with 25 percent a year earlier, said Sam Chandan, Real Capital’s chief economist. Such deals made up 61 percent of apartment transactions in the fourth quarter of 2005.

The U.S. homeownership rate is at its lowest point in 10 years, partly because the foreclosure crisis is forcing former owners to rent and discouraging would-be buyers. Foreclosure filings increased in almost three-quarters of U.S. cities last year, and the number of homes receiving a filing is likely to climb 20 percent this year, according to RealtyTrac. Apartment rents climbed 4.3 percent in last three months of 2010, the most since the third quarter of 2006, according to research firm Axiometrics, which predicts a 6 percent increase in U.S. rental revenue in 2011. “Those improving fundamentals are driving the willingness of investors to explore value-add opportunities as opposed to paying premium prices for core properties,” Chandan said. “That is a feature of the multi-family market that we do not see to the same degree in other sectors.” [Bloomberg]

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