Although commercial real estate sales are down across the board, the multifamily sector this year is posting the sharpest decreases in both number of sales and monetary sales volume compared to last year.
There were only six multifamily deals closed through April, roughly half the number that closed during the same period the last two years. The drop is significant as multifamily transactions have been growing over the past five years. There were 51 total multifamily sales last year, up from the 41 from 2018. In 2015, when there were only seven multifamily deals closed through April, a total of 30 properties were sold that year.
Monetary sales volume for multifamily deals has also dropped more than 70%. Through April, the sector saw $15.4 million in transactions, compared to the $84.7 million in deals closed in the first four months of 2019. That drop is striking compared to other sectors, which each posted decreases between 8% and 28%.
Because larger multifamily properties, like apartment complexes, tend to sell with a seven-or-eight-figure price tag, just a few multimillion-dollar deals could help swing the pendulum in a positive direction. Last year, six of the top 10 most expensive commercial real estate transactions were apartment complexes, with the No. 1 most expensive property fetching nearly $50 million alone.
While it’s likely that COVID-19 is partly to blame for the slowdown in multifamily deals, the figures could be indicative of a larger storm cloud settling over the sector, which local experts have warned was being overbuilt since 2016. With rising vacancy rates, investors looking to acquire multifamily properties may be passing on complexes in Baton Rouge.
However, Mark Segalla, multifamily expert for Elifin Realty, says that’s not the case.
“Baton Rouge is still a metro area that both in-state and out-of-state investors are looking at,” Segalla says.
According to Segalla, there were multiple “hot” multifamily deals in the works in Baton Rouge that were set to close this spring that were delayed because of the pandemic. He expects those deals to close later this year.
“Even though the first couple months were slower than typical, I think we still see a lot of those deals close and even new deals that will come to the market, which will hopefully close before the end of the year,” Segalla says. “I think we’re on track for another great year.”
Wesley Moore, an appraiser with local firm Cook, Moore & Associates, agrees that the emergence of the novel coronavirus may have put deals on pause and says it’s too soon to make a judgment on the multifamily market. Investors looking to buy may be watching to see if they can score lower prices on properties because of COVID-related bankruptcies. Segalla and Moore both say they haven’t seen any prices cut yet.
“There may be people on the sidelines watching, waiting, like vultures, before they make the deals,” Moore says. “There may be really great deals later this year. The first few months of this year are not a big enough sample to sound the alarm.”
Furthermore, in the surveys that Moore and his colleagues have conducted, those operating in the multifamily sector appear to be the least worried about being hurt by the coronavirus. Multifamily properties are typically seen as a longer-term investment.
Overall, the commercial market has seen a nearly 12% decrease in the number of transactions closed and a more than 43% drop in monetary sales volume. Through April, some $104.7 million worth of commercial deals were closed in East Baton Rouge Parish, compared to $215.2 million closed through April 2019.
Elifin’s report notes that the final week of April saw an uptick in activity, an encouraging sign. See the full report from Elifin Realty.