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1Q 2019UNITED STATESMULTIFAMILY CAPITAL MARKETS REPORT
TABLE OF CONTENTS
3 Key Takeaways
4 Sales Volume
5 Sales Volume by Market
6 Yield Spread
7 Cap Rates
8 Price Per Unit
9 Total Returns
10 Total Returns by Market
11 Top Buyers and Sellers
12 International Capital Buyers
13 International Capital Destinations
14 Effective Rent Growth
15 Effective Rent Growth by Market
16 Employment Growth Matrix
17 Supply and Demand
18 New Supply and Inventory Growth by Market
19 Occupancy Rate by Market
20 Mortgage Debt Outstanding
21 Mortgage Maturities
© NEWMARK KNIGHT FRANK | RESEARCH | 2019 2
KEY TAKEAWAYS
SALES VOLUMEInvestment sales volume totaled $36.4 billion in 1Q19, up 1.3% year-over-year, with over 70% invested in non-major markets. Trailing 12-month sales volume rose8.1% to $175.2 billion. 1Q19 marks the eighth consecutive quarter in which multifamily represented the highest sales volume of all property types.
CAP RATESNationally, cap rates decreased 2 basis points quarter-over-quarter to 5.39%, with major markets increasing 3 basis points and non-major markets decreasing 7basis points. Yields between major markets and non-major markets compressed to 85 basis points, representing the tightest spread since 1Q13.
RENT GROWTHAnnual effective rent growth increased 10 basis points to 3.0%, led by above-average growth in Las Vegas, Phoenix, Orlando, Jacksonville and Tampa. Rent growth was particularly strong in the Class B space, which increased 3.4% year-over-year.
SUPPLY AND DEMANDOver the past 12 months, 301,210 new units have been delivered while 299,310 have been absorbed. Dallas, Los Angeles and New York have added the greatest number of new units over the past 12 months, while Nashville and Charlotte have experienced the largest inventory growth rates at 4.2% and 4.0%, respectively.
INTERNATIONAL CAPITALDirect acquisitions by international capital sources totaled $14.7 billion over the past 12 months, representing a 3.5% increase year-over-year with increasinginternational interest in non-major markets. Canada remains the top foreign buyer of US multifamily, accounting for 49.5% of acquisitions by foreign buyers.
DEBT MARKETSMortgage debt outstanding for multifamily grew $32.2 billion to $1.4 trillion, a 2.4% quarter-over-quarter increase. Debt outstanding for GSE and Life Insurancelenders rose 11.4% and 9.4%, respectively. $124.1 billion of US multifamily mortgage are set to mature in 2019.
© NEWMARK KNIGHT FRANK | RESEARCH | 2019 3
SALES VOLUMEUNITED STATES; DOLLARS IN BILLIONS
Investment sales volume totaled $36.4B in 1Q19, up 1.3% year-over-year. The Southeast and Southwest accounted for 45.6% of all activity in 1Q19. Trailing 12-month investment sales volume rose to $175.2 billion compared with $162.1 billion over the prior 12 months.
4© NEWMARK KNIGHT FRANK | RESEARCH | 2019
Source: NKF Research, Real Capital Analytics
$28.
1
$35.
9
$36.
4
$37.
1 $36.
4
$42.
4 $49.
5
$46.
6
$52.
9
$0
$40
$80
$120
$160
$200
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
1Q 2Q 3Q 4Q
SALES VOLUME BY MARKET12-MONTH TOTALS; DOLLARS IN BILLIONS
Investors gravitated toward non-major markets in 1Q19 with over 70.0% of acquisition volume occurring in non-major markets, with a primary focus on value add. Several markets experienced a strong acceleration in year-over-year sales volume led by Charlotte (58.7%), Philadelphia (43.0%), Tampa (35.9%) and Phoenix (32.5%).
5© NEWMARK KNIGHT FRANK | RESEARCH | 2019
Source: NKF Research, Real Capital Analytics
101.2% Year-over-Year Growth
48.5% Year-over-Year Growth
30.6% Year-over-Year Growth
Record High First Half Volume ($2.9 Billion)
SFL$4.3
ATL$7.4
DEN$5.2
LV$2.3
MSP$1.9
NSH$1.8
ORL$3.2
PHI$2.9
PHX$7.2
POR$1.9
RD$2.9
SA$2.4
SAC$1.6
AUS$4.1
DFW$9.2
SF$6.2 DC
$7.7
LA$12.4
NYC$17.0
HOU$7.5
$5.0+ $2.6-4.9
$1.5-$2.5
CHA$3.1
TAM$3.3
CHI$5.3
SEA$5.0
SD$2.6
BOS$2.8
* Major markets: Boston, Chicago, Los Angeles metro, New York metro, San Francisco metro, Washington, D.C. metro. Non-major markets: all other markets.
YIELD SPREADUNITED STATES
Following a volatile 2018 treasury market, in which the spread between cap rates and the 10-year treasury rate tightened to this cycle’s lowest levels, the yield spread in 1Q19 increased 26 basis points quarter-over-quarter to 298 basis points.
6© NEWMARK KNIGHT FRANK | RESEARCH | 2019
Source: NKF Research, Federal Reserve Bank of St. Louis, Real Capital Analytics (Transactions $10 million and greater)
298
5.39%
2.41%
0
100
200
300
400
500
0%
2%
4%
6%
8%
10%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Yield Spread US Multifamily Average Cap Rate 10-Year Treasury Rate
CAP RATES12-MONTH AVERAGE
Cap rates compressed marginally, down 2 basis points quarter-over-quarter to 5.39% nationally. Over the past 12 months, cap rates in non-major markets have compressed 7 basis points due to heavy competition for suburban value-add product, while expanding 3 basis points in major markets.
7© NEWMARK KNIGHT FRANK | RESEARCH | 2019
Source: NKF Research, Real Capital Analytics (Transactions $10 million and greater)
5.39%
4.72%
5.58%
0%
2%
4%
6%
8%
10%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
United States Major Markets Non-Major Markets
* Major markets: Boston, Chicago, Los Angeles metro, New York metro, San Francisco metro, Washington, D.C. metro. Non-major markets: all other markets.
PRICE PER UNIT12-MONTH AVERAGE; DOLLARS IN THOUSANDS
The average price per unit increased 4.4% year-over-year to $168,736 in 1Q19. Non-major markets experienced the largest growth in pricing at 7.0%, compared to just 1.3% for major markets.
8© NEWMARK KNIGHT FRANK | RESEARCH | 2019
Source: NKF Research, Real Capital Analytics (Transactions $10 million and greater)
$169
$301
$142
$0
$75
$150
$225
$300
$375
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
United States Major Markets Non-Major Markets
* Major markets: Boston, Chicago, Los Angeles metro, New York metro, San Francisco metro, Washington, D.C. metro. Non-major markets: all other markets.
TOTAL RETURNSANNUALIZED
As of 1Q19, total returns for all apartments declined to 5.9% based on appreciation and income. However, garden apartments (primarily located in the suburbs) continue to outperform the overall apartment sector by 270 basis points – and have been the best performing subtype since 2014.
9© NEWMARK KNIGHT FRANK | RESEARCH | 2019
Source: NKF Research, NCREIF
2010 2011 2012 2013 2015 2016 2017 2018 2019
20.6% 16.4% 12.7% 10.7% 10.9% 11.7% 8.0% 6.7% 6.4% 6.0%
19.7% 14.9% 11.1% 10.2% 9.6% 10.6% 6.1% 4.7% 4.7% 4.7%
2014
LOW RISE
HIGH RISE
16.8% 16.0% 10.9% 10.7% 11.3% 14.6% 9.5% 8.9% 8.9% 8.6%GARDEN
18.2% 15.5% 11.2% 10.4% 10.3% 12.0% 7.3% 6.2% 6.1% 5.9%ALLAPARTMENTS
TOTAL RETURNS BY MARKETSELECT MARKETS
Total returns in several outperforming markets accelerated year-over-year, including Austin, Boston, Houston, Phoenix, Raleigh-Durham, San Jose and Washington, D.C.
10© NEWMARK KNIGHT FRANK | RESEARCH | 2019
Source: NKF Research, NCREIF
6.8%
7.8%7.2%
6.1%
2.2%
3.9%
7.3%
7.3%
6.5%5.9%
6.5%
3.5%
9.5%
3.6%
14.2%
3.6%
5.5%
7.8%
5.6%
7.8%
6.2%
5.7%
7.2%
6.6%7.0%
7.0%
2.8%
4.9%
7.9%
5.5%
6.7%6.1%
9.3%
3.9%
11.0%
4.4%
13.3%
4.6%5.3%
8.0%
5.7% 7.1%
7.6%
5.2%
0%
3%
6%
9%
12%
15%
Atla
nta
Aust
in
Bost
on
Char
lotte
Chic
ago
Dalla
s
Denv
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Hous
ton
Los
Ange
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Mia
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Nash
ville
New
York
Orla
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Phila
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Phon
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Portl
and
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Durh
am
San
Dieg
o
San
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San
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Seat
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Was
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D.C
.
1-Year Total Returns 2-Year Total Returns
TOP BUYERS AND SELLERS12-MONTH TOTALS; UNITED STATES; DOLLARS IN MILLIONS
Brookfield, Greystar and Blackstone have been the top buyers over the past 12 months with several large portfolio and entity-level transactions. Among the largest entity-level sellers were Forest City and EdR, while Lone Star disposed of a series of suburban workforce housing portfolios predominately in the Northeast and Mid-Atlantic.
11© NEWMARK KNIGHT FRANK | RESEARCH | 2019
Source: NKF Research, Real Capital Analytics
$0
$1,500
$3,000
$4,500
$6,000
Brookfield Greystar Blackstone Nuveen HarborGroup Int'l
GoldmanSachs
FPAMultifamily
CarrollOrg
NexpointRes Trust
AmericanLandmark
WatertonAssociates
RelatedCompanies
MorganProperties
Bridge InvGroup
PGIM RealEstate
Top Buyers
$0
$1,500
$3,000
$4,500
$6,000
Forest CityREIT
EdR Lone Star Greystar FairfieldResidential
StarwoodCapital
Blackstone GoldmanSachs
TrammellCrow Res
AvalonBay IvanhoeCambridge
CarmelPartners
Aimco SimpsonHousing
WoodPartners
Top Sellers
Single Asset Portfolio & Entity
INTERNATIONAL CAPITAL BUYERS12-MONTH TOTALS
12© NEWMARK KNIGHT FRANK | RESEARCH | 2019
Source: NKF Research, Real Capital Analytics
BY COUNTRY
Canada49.5%
Netherlands14.4%
Bahrain8.3%
Singapore5.7%
UK4.5%
Japan4.0%
Germany3.0%
Other10.6%
Direct acquisitions by international capital sources totaled $14.7 billion over the past 12 months, representing a 3.5% increase year-over-year. Canada remains the top buyer of US multifamily, accounting for 49.5% of acquisitions by international capital sources, however interest from investors from the Netherlands and Singapore is growing.
TOP BUYERS (DOLLARS IN MILLIONS)
$299
$331
$342
$349
$373
$385
$609
$835
$1,092
$5,936
Hasta Capital (Mexico)
H&R REIT (Canada)
Akelius Residential (Sweden)
Western Wealth Capital (Canada)
Allianz (Germany)
Starlight Investments (Canada)
PGGM (Netherlands)
CapitaLand (Singapore)
Investcorp (Bahrain)
Brookfield (Canada)
INTERNATIONAL CAPITAL DESTINATIONS12-MONTH TOTALS
While international capital sources historically have looked to “safe haven” major markets, investment into non-major market continues to rise as international firms have poured capital into growing markets throughout Florida, Texas and Denver.
13© NEWMARK KNIGHT FRANK | RESEARCH | 2019
Source: NKF Research, Real Capital Analytics
MAJOR MARKETS 46.2%
BY MARKET TIERAs a % of Cross-Border Capital
BY REGIONAs a % of Cross-Border Capital
NON-MAJOR MARKETS 53.8%
MID-ATLANTIC 9.6
MIDWEST 9.3%
NORTHEAST 12.7%
SOUTHEAST 22.8%
SOUTHWEST 23.9%
WEST 21.7%
ATL$517M
BOS$575M
CHI$624M
DFW$499M
DC$1.0B
DEN$694M
HOU$344
LA$1.4B
NYC$2.5B
ORL$137M
PHX$319M
RD$220M
SF$555M
SEA$452M
SFL$73M
TAM$710M
CHA$84M
AUS$515M
LV$200M
POR$180M
HI$288M
SD$145M
* Major markets: Boston, Chicago, Los Angeles metro, New York metro, San Francisco metro, Washington, D.C. metro. Non-major markets: all other markets.
PHI$284M
EFFECTIVE RENT GROWTHANNUAL; UNITED STATES
Annual effective rent growth rose 10 basis points quarter-over-quarter to 3.0% nationally. At 3.4% effective rent growth, class B is the best preforming class – and has been over the past 3 years, averaging 3.3% rent growth compared with 2.7% for class A and 3.0% for class C.
14© NEWMARK KNIGHT FRANK | RESEARCH | 2019
Source: NKF Research, Axiometrics
-8%
-4%
0%
4%
8%
12%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
US Average Class A Class B Class C
EFFECTIVE RENT GROWTH BY MARKETANNUAL; SELECT MARKETS
Over the past 12 months, rental growth was strongest in Las Vegas and Phoenix, as well as a host of markets in the Southeast including Orlando, Jacksonville, Tampa and Orlando, all of which have experienced above-average employment growth.
15© NEWMARK KNIGHT FRANK | RESEARCH | 2019
Source: NKF Research, Axiometrics
7.0%
6.6%
5.4%
4.9%
4.5%
4.3%
4.3%
4.2%
4.1%
4.0%
3.9%
3.7%
3.5%
3.5%
3.3%
3.2%
3.1%
3.1%
3.1%
3.0%
2.9%
2.6%
2.3%
2.2%
2.1%
2.1%
2.1%
2.1%
2.0%
2.0%
1.9%
1.6%
1.5%
0%
1%
2%
3%
4%
5%
6%
7%
8%
Las
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Portl
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US Annual Average Effective Rent Growth = 3.0%
EMPLOYMENT GROWTH MATRIXSELECT MARKETS
While New York has added the most jobs over the past 12 months, employment growth has been strongest in Orlando, Dallas and Phoenix. Total non-farm employment increased 3.7% in Orlando year-over-year, while Dallas saw an increase of 3.0%, followed by Phoenix with 2.8%.
16© NEWMARK KNIGHT FRANK | RESEARCH | 2019
Source: NKF Research, U.S. Bureau of Labor Statistics
Atlanta
Austin
Boston
CharlotteChicago
Columbus
Dallas
Denver
Houston
Las Vegas
Los Angeles Miami
Nashville
New York
Orlando
Philadelphia
Phoenix
Portland
Raleigh-DurhamSan Antonio
San Diego
San Francisco
San Jose
Seattle
TampaWashington, D.C.
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
0% 1% 2% 3% 4%
YEAR
-OVE
R-YE
AR J
OBS
ADDE
D
YEAR-OVER-YEAR EMPLOYMENT GROWTH
SUPPLY AND DEMANDUNITED STATES
64,280 units were delivered in 1Q19, compared to 21,477 absorbed. Over the past 12 months, 301,210 new units have been delivered, while 299,310 have been absorbed. Year-over-year, inventory growth has decreased 10 basis points year-over-year to 1.6%.
17© NEWMARK KNIGHT FRANK | RESEARCH | 2019
Source: NKF Research, Axiometrics
0%
1%
2%
3%
4%
5%
0
100,000
200,000
300,000
400,000
500,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1Q19
New Supply Demand Inventory Growth
NEW SUPPLY AND INVENTORY GROWTH BY MARKET
On a nominal basis, Dallas, Los Angeles and New York have added the most new units over the past 12 months, while Nashville and Charlotte have experienced the largest inventory growth at 4.2% and 4.0%, respectively – compared to the national average of 1.6%.
18© NEWMARK KNIGHT FRANK | RESEARCH | 2019
Source: NKF Research, Axiometrics
0%
1%
2%
3%
4%
5%
0
5,000
10,000
15,000
20,000
25,000
Dalla
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Los
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New
York
Seat
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Was
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New Supply Demand
12-MONTH TOTALS; SELECT MARKETS
OCCUPANCY RATE BY MARKET12-MONTH TOTALS; SELECT MARKETS
The national annual average occupancy rate rose 10 basis points quarter-over-quarter to 95.5%, led by Minneapolis.
19© NEWMARK KNIGHT FRANK | RESEARCH | 2019
Source: NKF Research, Axiometrics
97.1
%
96.9
%
96.6
%
96.5
%
96.4
%
96.3
%
96.3
%
96.2
%
96.2
%
96.1
%
96.1
%
96.0
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95.9
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95.7
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95.6
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95.6
%
95.6
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95.5
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95.4
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95.3
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95.1
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94.9
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94.9
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94.8
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94.8
%
94.8
%
94.7
%
94.6
%
94.6
%
93.4
%
93.3
%
93.1
%
92%
93%
94%
95%
96%
97%
98%
Min
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New
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US Annual Average Occupancy Rate = 95.5%
MORTGAGE DEBT OUTSTANDINGUNITED STATES
Mortgage debt outstanding for multifamily grew $32.2 billion to $1.4 trillion, a 2.4% quarter-over-quarter increase. Debt outstanding for GSE and Life Insurance lenders rose 11.4% (or $68.8 billion) and 9.4% (or $6.9 billion), respectively.
20© NEWMARK KNIGHT FRANK | RESEARCH | 2019
Source: NKF Research, Mortgage Bankers Association
DEBT OUTSTANDING BY GROUP AS A PERCENTAGE DEBT OUTSTANDING BY GROUP IN BILLIONS
GSEs49.5%
Banks & Thrifts 31.6%
Government6.6%
Insurance Companies
5.9%
CMBS3.2%
Other3.2%
$675
.0
$430
.4
$90.
3
$80.
2
$43.
4
$43.
2
$0
$100
$200
$300
$400
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$600
$700
$800
GSEs Bank &Thrifts
State & LocalGov't
Life Co CMBS Other
MORTGAGE MATURITIESUNITED STATES; DOLLARS IN BILLIONS
$124.1 billion of US multifamily mortgages are set to mature in 2019. Nearly $695 billion of additional mortgages are set to mature between 2019 to 2023 - $513.7 billion of those being from other lenders (primarily GSE).
21© NEWMARK KNIGHT FRANK | RESEARCH | 2019
Source: NKF Research, Federal Reserve, Trepp
$32 $33 $33 $32 $29 $27 $24 $27$34
$43$51 $55 $57 $54
$43$32
$8 $9 $10 $10 $13 $15 $16$21 $6
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$63$68
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$77$82
$84$77
$66
$56
$0
$25
$50
$75
$100
$125
$150
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Banks CMBS Insurance Companies Other (Primarly GSE)
$693.3 Billion
NEW YORK CITYHEADQUARTERS125 Park AvenueNew York, NY 10017212.372.2000
Newmark Knight Frank has implemented a proprietary database and our tracking methodology has been revised. With this expansion and refinement in our data, there may be adjustments in historical statistics including availability, asking rents, absorption and effective rents.
Newmark Knight Frank Research Reports are also available at www.ngkf.com/researchAll information contained in this publication is derived from sources that are deemed to be reliable. However, Newmark Knight Frank (NKF) has not verified any such information, and the same constitutes the statements and representations only of the source thereof, and not of NKF. Any recipient of this publication should independently verify such information and all other information that may be material to any decision that recipient may make in response to this publication, and should consult with professionals of the recipient’s choice with regard to all aspects of that decision, including its legal, financial, and tax aspects and implications. Any recipient of this publication may not, without the prior written approval of NKF, distribute, disseminate, publish, transmit, copy, broadcast, upload, download, or in any other way reproduce this publication or any of the information it contains.
Jeff DayPresidentHead of Multifamily Capital Marketsjeff.day@ngkf.com
Blake OklandVice ChairmanHead of Multifamily Investment Salesbokland@ngkf.com
Mike MayVice ChairmanHead of Multifamily Debt & Structured Financemike.may@ngkf.com
Sharon KaraffaSenior Managing DirectorHead of Multifamily Strategy sharon.karaffa@ngkf.com
Jonathan MazurSenior Managing DirectorNational Researchjmazur@ngkf.com
Mike WolfsonDirectorCapital Markets Researchmwolfson@ngkf.com
Sean MarmoraResearch AnalystMultifamily Researchsean.marmora@ngkf.com
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