Apartment Advisor Recap, Part I: Life as We Know It

A holiday chill is in the air–December has arrived, and it’s that time again: time for Dupre + Scott to work their prognostication magic (ok, so it’s not so much magic as informed deduction) and tell us what lies in the multifamily industry’s future. That’s right, the Forecast issue of Apartment Advisor is out!

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Of course, any decent forecast begins by laying out the current situation. We’ll go over Dupre + Scott’s key numbers for December today, and pick up on Friday with their forecasts for the next few years. So without further adieu, we give you: the December numbers recap. Enjoy!

  1. Price Trends: The current average price paid for multifamily buildings (five units and larger) in King, Snohomish and Pierce counties is $137,070–that’s up 16% from last year, and hitting above the 2008 peak for the first time.
  2. Gross Multiplier: Historically, properties have sold at about 8.3 times the annual gross income. But after 2004, investors became willing to pay more for a property that would generate less income, and the gross multiplier rose. Currently we’re at 10.6, up 7% from last year.
  3. Cap Rates: After hitting 7.4% in 2000, these fell to 4.8% seven years later, after which they again began to climb. The last peak hit in 2010, at 6.2%; currently, we’re at a 5.6% average–and falling.
  4. Expenses: In 2011, operating expenses averaged $4,713 per unit (up 3% compounded annually from 2001). Dupre + Scott notes that landlords and investors controlled costs well in 2011, as they rose just 1.9% over 2010.
  5. Capital Expenses: Last year, capital expenses averaged $493. It’s worth noting that most investors underestimate the reserves that will be needed for a unit each year. While units that are less than 20 years old may squeak by with just $350 or so budgeted per year, older units are more likely to require a yearly budget of $600-$700. Be warned!
  6. Sales Volume: $2.2 billion of 5-unit and larger properties have been purchased this year to date–that makes 2012 the fourth highest volume year. Closing sales, however, tell a slightly different story; currently at 244, they’re not hitting anywhere close to the 2005 peak of 660. Dupre + Scott notes that most analysts now consider 2005 an anomaly, and we can expect to see numbers more like this year’s as we move forward.

There you have it–the state of the union, as it were, for Pierce, King and Snohomish counties. We’ll pick up on Friday with the Apartment Advisor forecasts for the year ahead (and beyond). See you then!


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