Investors Look to Secondary and Tertiary Markets for Multifamily

savannah-ext-300Aug 8, 2012

Investors tired of paying super-high prices for apartment properties might follow the lead of Panther Properties Investment LLC, which just bought the Effingham Parc Apartments, located a few miles outside of Savannah, Ga.

“We are at that point in the cycle when in search of yield, investors look to secondary and even tertiary markets,” says Dan Fasulo, managing director of data firm Real Capital Analytics, regarding the sale, which closed in July.

The Effingham deal could represent the shape of things to come—as investors once again begin to pay respectable prices for class-A assets in these strengthening secondary markets. Panther Properties paid $30.8 million for Effingham, or about $87,500 per apartment for the class-A, 352-unit property. The capitalization rate for the deal works out to 7.25 percent, based on trailing three-month occupancies, according to Panther. Cap rates represent the annual income a property as a percentage of the sale price.

“I’m not going to pay a 5 percent cap rate for a property in Atlanta,” says Eric Wardrop, vice president of acquisitions for Panther Properties. Panther targeted Savannah as a market to invest in four years ago. The city is one of the fastest-growing employment centers in the country. Its container port is the fourth largest in the U.S. and aims to triple its current activity level by 2030. This July, President Obama announced that a dredging project for the port will be placed on the funding fast-track, with all necessary federal reviews to be finished by November.

The apartment market in Savannah has now almost absorbed all the new apartments built just before the crash, says Wardrop. In the second quarter, 6.8 percent of apartments in the area were vacant, according to data firm Reis, Inc., based in New York City. That’s down from a peak of 12.3 percent two years before, but it’s still higher than the national vacancy rate of 4.7 percent.

Effingham Parc is fully occupied, with a vacancy rate of roughly 4 percent—though Panther is willing to accept… Read more…

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