While public apartment REITs heavily favor core properties, they have also been buyers of value-add assets, including development sites, particularly in markets they deem strategic. The public apartment REITs are more defined by geography, and the largest companies have been targeting major markets and exiting secondary and tertiary markets. This focus is not likely to change in the current market environment. However, private REITs and institutional investors targeting yield are more likely to migrate beyond the major markets into secondary and possibly tertiary markets.
In the value-add space for apartment investment, private entrepreneurial owners and operators account for the largest share of acquisitions. Institutional investors and opportunistic equity funds are also more active buyers of value-add apartments. Interestingly, cross-border investors are also responsible for a larger share of value-add than of core activity, but the origin of this capital is quite different. Instead of the major foreign institutions and sovereign wealth funds that are investing in core properties, it is largely foreign-based private investors, particularly from Canada and Israel, that have been active buyers of value-add apartment properties.
Debt Capital
Debt capital for apartments is much more segmented along the core/value-add divide. Most notably, the government agencies remain the largest multi-family lender for core properties, but provide relatively little financing for value-add transactions. The agencies provided debt for 56% of the core apartment acquisitions that have received financing so far this year. However, Fannie and Freddie’s share of the core lending market is down from a year ago, as insurance companies and regional and community banks have started to offer competitive terms.
Data subject to future revision; based on properties & portfolios $5 mil and greater.
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