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Small-property commercial sales hit a speed bump in January

Sales of smaller multifamily and commercial properties dipped by nearly 5 percent to begin the year, after setting a record in 2015.

Transactions involving assets priced under $5 million totaled $6.4 billion in January, down 4.8 percent compared to same month a year earlier, Boxwood Means reported.

Volumes also dropped steeply from a busy December, when sales reached $11.2 billion, the company said.

Boxwood Means Principal Randy Fuchs said investors are likely taking “a breather.” Typically, December is the heaviest month for sales, and the volumes drop off in January.

He noted that rents and other property fundamentals are still strong, and investors like Fannie Mae and Freddie Mac are now readily financing multifamily property sales in smaller markets.

More small-cap sales are shifting over to smaller markets, Fuchs said. Some 84 cities of the 122 markets that the company tracks posted year-over-year sales gains in January.  

“We are coming out of the gate here pretty strong in terms of demand,” Fuchs told Scotsman Guide News. “Small-cap vacancy rates are at or below previous record lows. There is every indication to believe, subject to any kind of cataclysms in the market, that we should expect a very strong year in  terms of fundamentals.”

Small-cap sales, including multifamily, have posted two consecutive record years. In 2015, overall transaction volume totaled $93.2 billion, which was up nearly 14 percent compared to the pace of 2014.

Asset prices cool off 

The market is slowing down in some ways, however. Notably, the price gains of small-cap multifamily and commercial real estate assets has slowed down. 

The aggregate price of small-cap multifamily properties rose just 0.2 percent in January, compared with the prior month, in 48 multifamily markets tracked by the company, the lowest monthly gain in four years. The year-over-year price gain for multifamily assets was 7.5 percent in January, which has declined from double-digit gains in early 2015.

The aggregate price of smaller commercial properties, excluding multifamily, also has slowed in the 122 markets tracked by Boxwood Means, to just 0.1 percent for the month of January. Prices of small-cap commercial properties had a year-over-year gain of 4 percent in January, the slowest pace in two years.

Small-cap commercial real estate has more room to move up than multifamily properties or the large commercial assets popular with institutional investors, Fuchs said. Small-cap commercial real estate prices remain about 9 percent below the peak.

Meanwhile, small-cap multifamily prices have jumped 165 percent since hitting the bottom at the end of 2010, and now are almost 17 percent above the prerecession peak.



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