Wall Street takes credit for multifamily swoon

By Richard Mize

Published: July 19, 2008

The apartment sale boom is over in the Oklahoma City area, as in the rest of the country, but some unusually high-dollar purchases are still blowing in.

Trouble in capital markets cut investment purchases drastically, commercial real estate firms reported in mid-year summaries.

CB Richard Ellis-Oklahoma tracked nine sales of complexes with more than 50 apartments, a 50-percent drop compared with the first half of last year.

The firm said average prices continued to surge: $43,572 per unit 1980s-era properties and $31,379 per unit for stable 1970s-era properties in good locations.

"The decrease in transactions is entirely attributed to problems in the mortgage industry. The average prices ... are above last year's averages, but so is the quality of the individual transactions that have taken place with the exception of (lender) sales,” William T. Forrest and Eva M. Wills wrote in the CB Richard Ellis report.

At Sperry Van Ness, Andy Burnett and David Burnett tracked 13 apartment sales, half the number in the first six months of the 2007. Sperry Van Ness, which tracks apartments with 15 or more units, recorded a lower average price: $36,387, down 10 percent from midyear 2007.

Realty firms track sales by different parameters, so market reports vary somewhat. Both firms agree, however, that the drop in sales has nothing to do with the local multifamily market and everything to do with Wall Street.

"The drop in sales volume and average prices has little to do with local market fundamentals but was more a reflection of the macroeconomic capital market correction,” the Burnetts, who are brothers, wrote in Sperry Van Ness's Advisor Insights newsletter. "The credit crisis currently under way on Wall Street has begun to affect all facets of commercial real estate with Oklahoma being no exception.”

Credit structures, not just availability, have changed the rules of commercial lending, they wrote.

"The commercial real estate bull market of the previous five years was driven b the cheap credit offered by lenders,” the Burnetts wrote. "With conduit financing now a thing of the past, local banks, Fannie Me and Freddie Mac have become the main source of liquidity. As the financial markets continue to tighten their underwriting standards, pro-forma transactions are becoming more difficult to finance.”

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