State of the Multihousing Market August 2012
We recently sat down with Gary Krisman for a quick Q&A session about the state of the Oklahoma City Multihousing Market.
Can you give us your thoughts as to why multifamily is doing so well both nationally and locally?
Nationwide demographic and economic realities are swelling the ranks of renters. The population of 20 to 34 year olds (Generation Y members) entering the job market in the near future is huge. Many of these young people do not have the dream of buying that first home and starting to build value because of (1) the tarnished reputation of home ownership (2) the still unresolved foreclosure crisis and (3) tighter credit standards limit the possibility of home ownership. So, when this segment of our population starts to get jobs, apartments are where they choose to live.
What are the fundamentals that drive apartment values in our State?
Low unemployment translates to higher occupancy rates. Currently, both Oklahoma City and Tulsa have rates below 5%. Higher occupancies allow landlords to raise rents when leases turn over, which in most projects is every six months to a year. The increased income translates to an increase in the project value. Most multifamily property values are set by capitalizing the Net Operating Income and multifamily has the lowest cap rates of all types of commercial investment properties and lower cap rates mean higher values for investors (excluding single asset, credit tenant deals). Secondly, there is abundant long term, low interest mortgage money available to multifamily investors form Fannie Mae, Freddie Mac and HUD. Current rates are below 4% for an 80% loan to value with a 30 year amortization, 10 year term.
What are the occupancy rates and cap rates in our market for class A & B properties and what has the sales activity been this year?
According to recent mid-year reports Oklahoma City is enjoying occupancy rates of 93.3% and Tulsa is not far behind at 92.8%. Cap rates for Class A properties in Oklahoma City are 6.0% to 6.75% while Class B properties are trading at 7.0% to 8.5%. In Tulsa cap rates for Class A properties are 6.5% to 6.75% while Class B properties are trading at 7% to 8%.
Multifamily sales volume in Oklahoma City for the first half on 2012 is reported to be in excess of $172,000,000 as compared to $28,000,000 for the same period in 2011 (500% increase). The bulk of this dollar volume was in the Class A market. Multifamily sales volume in Tulsa followed the Oklahoma City trend with 13 properties trading hands in the first half of 2012 versus only four in the first half of 2011. The bulk of the dollar volume in Tulsa was generated in Class A sales.
Oklahoma City will add 1,124 units in five Class A projects in 2012 and Tulsa will add 1,049 units in five projects as well.
Is it a good time to invest in apartments
Yes. An investor certainly needs to rely on a real estate professional to advise in regard to the local markets, and, if not an operator, a good reliable management company is a must. But to “bottom line” it, high occupancies, low unemployment, abundance of cheap mortgage money and huge amounts of equity money available to invest make this a fun time to be an apartment broker.