Avison Young releases Q1 2009 Multi-Family Investment Report: Dollar volume up over Q4 2008 but well below Q1 2008 levels as bid-ask gap remains a factor

BC’s multi-family investment sector is picking up steam after hitting what appears to have been the bottom of the market for this sector in the fourth quarter of 2008. Primary reasons for the increased activity include the attractive performance aspects of this asset class, and historically low financing rates. However, sales activity and pricing remain well below the levels from a year ago due to the bid-ask gap that still exists between vendors’ and buyers’ expectations.

These are some of the findings in Avison Young’s Q1 2009 BC Multi-Family Investment Report.

“BC’s multi-family properties remain top-performing commercial assets during the economic downturn, with investors continuing to be attracted to the asset’s consistent, low-risk returns. This was a key reason for the increase in sales during the first quarter of 2009 versus the fourth quarter of 2008,” comments Avison Young principal, Rob Greer. “Inexpensive financing rates are currently driving the market. Due in part to the availability of attractive financing through Canada Mortgage and Housing Corp. (CHMC), multi-family assets continued to trade during the first quarter of 2009 with several deals firm and pending completion.” (CMHC-insured mortgages are currently available in the 3.5% range compared to the high 4% to low 5% range 12 months ago.)

However, while sales volumes exceed fourth quarter 2008 levels, they are still well below the volumes experienced over the past five years, and activity may not rebound to previous levels until 2010, according to Avison Young Multi-Family Investment Advisor, Michael Brodie. 

“The slower activity can be primarily attributed to the new price expectations of purchasers and the unwillingness of some vendors to meet them,” explains Brodie, who says average prices are down approximately 10% to 20% from the peak in mid-2008. “There continues to be a high number of listings (112 currently) as some vendors are still looking to achieve yesterday’s prices in today’s environment. Most purchasers are now looking for a higher return on potential investments and cap rates have stabilized at 100 to 150 basis points above the market peak. We do not foresee a return to previous cap rate levels in the near future.”

According to Avison Young’s survey, the number of multi-family investment transactions during the first quarter of 2009 totaled 17 – down 35% from the 26 deals recorded in the first quarter of 2008 but up 143% from the seven deals closed in the fourth quarter of 2008. The total value of transactions in the first quarter of 2009 amounted to $59,320.530 – down 36% from the $92,102,720 recorded in the first quarter of 2008 but double the dollar volume registered in the last quarter of 2008.

During the first quarter of 2009, the buyer profile predominantly consisted of local private investors wanting to take advantage of higher cap rates and historically low interest rates. Greer explains: “Recent buyers have primarily been high net worth individual investors wanting to purchase for the first time in three to four years, and who are attracted to the now positive spread between cap rates and the cost of debt.”

Read the Press Release “BC’s multi-family investment sector shows signs of rising from market bottom” (April 21, 2009).

 

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