Sacramento Multifamily Investment Surges to All-Time High in 2018

Sacramento Multifamily Investment Surges to All-Time High in 2018

CoStar Market Insights: Large Scale Deals, Increased Pricing Drive Sales Volume Past $1 Billion for Fourth Consecutive Year

BY DAVID WHITMORE (via CoStar Group)

Villagio Apartment Homes in Sacramento, California.

Villagio Apartment Homes in Sacramento, California.

Sacramento’s multifamily sales volume has reached a record high in 2018. With just a couple of weeks remaining in the year, total investment in multifamily property topped $1.3 billion, surpassing the previous all-time sales peak set in 2016.

Heading into 2018, the specter of Proposition 10 and its possible effect on sales loomed large. The initiative that failed to win voter support in the November elections would have repealed Costa Hawkins, a statewide measure that limits rent control to communities built before 1995, and allows local municipalities to enact their own rent control measures.

However, the record sales volume indicates the prospect of rent control did not temper investor enthusiasm for multifamily communities in the Golden State’s capital. The average sale price for apartments in 2018 is $7.2 million, or 22 percent higher than the previous high this decade of $5.9 million, recorded in 2016.

The increase in both sales volume and the average sale price is mainly attributable to the large number of Class B properties that traded hands in 2018. These types of communities account for $735 million of 2018’s total sales volume; nearly double 2017’s mark, and 10 percent higher than 2016, the strongest year on record for mid-tier properties.

Furthermore, in 2018, Class B communities have sold on average for $17.9 million per property. By comparison, the previous peak sale price for mid-range projects was 2016’s figure of $15.9 million.

Most key apartment sales metrics increased in 2018. The average price per unit has increased modestly to $133,000; by comparison, the average price per unit in 2016 and 2017 was $100,000 and $128,000, respectively.

The average cap rate is 5.3 percent. In contrast, the average cap rate was 5.9 percent in 2016 and 5.6 percent in 2017.

One of the largest deals in metropolitan Sacramento history also helped propel sales volume in 2018. In May, Blackstone Group acquired Slate Creek at Johnson Ranch for an estimated sale price of $148.7 million, or $243,000 per unit. Located in Roseville, the 608-unit community was part of a six-property, four-state portfolio Blackstone acquired from Kennedy-Wilson Properties, which originally bought the Slate Creek apartment complex in 2015 for $100 million, or $163,000 per unit. Occupancy at the time of sale was about 91 percent.

Another noteworthy deal was the sale of Villagio Apartment Homes. In September, Sacramento-based Oakmont Properties acquired the 272-unit community from JCM Partners for $70 million, or $257,000 per unit. Amenities include walk-in closets, in-unit washers/dryers, package service and a business center.

The Sacramento metropolitan area’s strong fundamentals have driven investor interest in multifamily property. Vacancies are only 4.2 percent, well below the national average of 5.9 percent, and among metropolitan area’s with at least one million residents, the current rent growth of 4.2 percent is right near the top. As a result, investors have again turned to Sacramento in 2018 and propelled investment to a record high.