Multifamily REITs Continue to Buy
Still Buying
3rd Quarter Multifamily REIT Buying Activity
According to global real estate advisor Avison Young, multifamily sales volume has plunged by nearly 62% year-to-date as compared to 2022, but large multifamily REITs have not stayed entirely on the sidelines. Most of the residential REITs reported earnings over the past week. Generally, NOI was up but pressured by inflation-driven expenses, while rent showed continued signs of moderating.
More interestingly however was the acquisition activity of the largest residential REITs . The five largest multifamily REITs purchased over $870 million of property in the third quarter representing 3,481 units across exclusively Sunbelt markets. While this is a far cry from the $2 billion in acquisitions from the third quarter of 2022, it shows that residential REITs are taking advantage of the market dislocation caused by rising rates.
These purchases work out to an average price per unit of $252,000, nearly 30% below Avison Young's nationwide average of approximately $350,000. The spread between private market transactions and where the public market is pricing these portfolios continues to be wide. Viewed relative to the enterprise values of these REITs it is clear the market is deeply discounting publicly traded real estate. For example, Mid-America Apartment Communities (MAA) has an enterprise value of $18 billion and owns 95,000 units, implying a market price per unit of just $196,000.
Source: Avison Young
Commercial Brokers' Annus Horribilis
Broker's Earnings Per Share Tumble
The tip of the spear for commercial real estate transactions are brokers. The largest brokerage houses have seen their fortunes turn quickly this year as transactions volumes (cited above) slowed dramatically. All of the major brokerages announced cost cutting measures in their latest earnings releases. Per Bisnow:
“We discussed earlier this year that we were prepared to cut costs further if the market environment deteriorated,” CBRE Chief Financial Officer Emma Giamartino said on the call Friday morning. “That time has come, and we will be reducing costs across our lines of business.”
Earnings per share have fallen over 70% year-over-year and are below 2019 levels. Brokerages have made efforts to diversify their revenue streams, adding more consultative and professional services to their offerings, but they are still largely exposed to the transactions business. Commercial property distress presents its own opportunities, as Newmark CEO Barry Gosin said,
"Recapitalizations and restructuring volumes are expected to become an ever-bigger part of our business."
Quote Book
Source: Bloomberg
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