REITS took the biggest prizes, but where will Frederick’s multi-family market go from here?
Thanks to the struggling housing market, glut of foreclosures and tight financing guidelines, many U.S. families are choosing to rent rather than buy — which has been a boon for the multifamily real estate market.
Multifamily is currently the darling of commercial real estate, and has attracted the attention of REITs all over the country. The commercial real estate market in Frederick County was no exception, with some very large deals closing in 2011: $65 million worth versus $13 million in 2010!
As a result of the lingering repercussions of the subprime melt down, in just the last twenty-four months market values in this sector have experienced increases as much as 15% to 20%. Other major market areas around the country have seen larger spikes.
Here are the top 5 Frederick County multifamily deals of 2012:
5. $528,000 108 Boundary Avenue
This was a very small deal as apartment buildings go, but it still made our top 5. Mildred Biser sold a 10 unit apartment building (located in Thurmont) in an all-cash deal to Raymond Kline of KMKL Property, LLC in April.CoStar reports that at the time of the sale, the property was 100% leased, with each unit renting for $550 a month. A very nice return on investment rate when you consider the alternatives out there right now!
4. $6,825,000 Chesterbrook Apartments
Van Metre Companies purchased Chesterbrook Apartments (84 units located on Broad Street in Middletown) fromChesterbrook Manor Apts, LLC . The sale closed in August. At the time of sale, the property was 98% occupied. The deal also included an adjacent parcel of land of about 1.74 acres that is zoned for 16 townhomes. The cap rate for the apartments hovered around 7.2%. This is about a point lower than when it sold less than two years ago.
3. $7,000,000 Hunters Glen Apartments
In April, Home Properties Inc, a New York based REIT, purchased Hunters Glen Apartments (108 units located on Key Parkway) from The Apartment Gallery/MGM Enterprises in PA. The building was 85% occupied at the time of sale. Home Properties acquired the building as an investment, and the company also owns Elmwood Terrace Apartments (504 units) across the street. According to CoStar, the pro-forma cap rate was reported to be 7%, and first year NOI was approximated to be $490,000 with an EGI of $1.09 million.
2. $19,250,000 Overlook Manor Apartments
Equity Residential, a Chicago-based REIT, sold two apartment buildings to Capital Partners, a privately-held REIT located in Washington, D.C. Overlook Manor Apartments (290 units located on Alban Court) was the smaller of the two. The sale closed in March.
1. $31,250,000 Brookside Apartments
The other half of the Equity Residential deal was Brookside Apartments (432 units located on Willowdale Drive). CoStar reported that the units of this two-building portfolio were 95% occupied at the time of the sale. With an actual and pro-forma cap rate on the sale estimated at 7%, the NOI is estimated to be $3.54 million on this deal.
The big question is, of course, will this trend continue during 2012 or will the market for multifamily peak? It’s a tough call. At this point, interest is so high that , so financing capital is relatively plentiful. Increased demand will obviously push prices higher, but then again rents are expected to climb as well as the demand for rental units continues to grow.
Eventually, the increasing ripples in rental rates will reach a point of intensity that it will provide a positive boost to the single family market.
What do you think? Will 2012 be another strong year in Frederick County for multifamily deals?
The author: Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He also writes for TheTentacle.com.