Priced to sell
Apartment owners are more willing to sell than in recent years of a decade-long-plus rise in property prices.
Investor demand for apartments remained strong at midyear, owners were increasingly ready to sell, and buyers were accepting lower returns, according to a brokerage report.
“It’s easy to buy at record low cap rates today because everybody else is doing it,” said Mike Buhl, broker-owner of Commercial Realty Resources in Norman.
A capitalization rate — or cap rate — is a percent measurement of investment risk and value determined by dividing a property’s net operating income by its purchase price.
The lower the cap rate, the higher potential risk — but the higher the property value. So, the lower cap rates are, the better for sellers.
The situation has owners more willing to sell than in recent years of a decade-long-plus rise in property prices, Buhl said, and that could signal a shift in the market.
At midyear, he said, 24 properties totaling 4,323 units in Oklahoma City and 13 properties totaling 1,892 units in Tulsa were offered for sale on internet listing and brokerage firm websites.
“On the surface that is good news, except many of these would-be sellers have been short-term owners of a few years or less,” Buhl said. “So the first question pointing to a possible transition is whether the fundamentals on these properties have risen to the point of providing a profitable exit.”
Some apartment complexes are selling less than two years after they were purchased, according to GlobeSt.com, a national online producer of real estate news and information.
The site recently reported a sale of 12 such properties in the DallasFort Worth area totaling 3,200 units valued at $275 million.
Buhl said continued investor demand combined with owners’ readiness to sell keeps pushing prices up.
He wondered “if the next set of buyers will be willing to pay that next level of pricing for these owners to become sellers. If that is the case, we will see the market reach higher valuations in the second half of the year.”
Interest rates aren’t a factor, Buhl said.
“One would expect that the cumulative impact of rate increases over time would eventually influence the sector, but that has not happened yet,” he said. “If the Federal Reserve does continue with rate hikes this year, cap rate spreads may have to compress. But at this stage, rate hikes are being absorbed and remain manageable and there is scant evidence of an uptick in cap rates.”
Oklahoma City sales
In the first half of 2018, Buhl tracked 28 sales of properties with more than 25 units, for a total of 4,428 units, in the Oklahoma City metro area. That was down 4 percent from 4,624 units sold at midyear 2017.
Total sales volume was $162.4 million, compared with $193.2 million during the first six months of 2017.
The overall average price per unit was$36,687, down $5,111, or 12.2 percent from the same period last year.
Tulsa sales
In the first half of 2018, Buhl tracked seven sales of properties with more than 25 units, for a total of 1,313 units, in the Tulsa area. That was down 37 percent from 2,093 units sold at midyear 2017.
Total sales volume was $69.4 million, compared with $115.6 million during the first six months of 2017.
The overall average price per unit was $52,914, down $2,366, or 4.3 percent from the same period last year.