Housing-based developer Hanover Co. sold its 248-unit Hanover Foxborough apartment complex to the investment arm of MetLife in November for $87.55 million. The property attracted more than 20 offers. Photo courtesy of the town of Foxborough.
The capital markets remain liquid and JLL is seeing robust investor demand for multifamily housing across Greater Boston. Historically, low multi-housing investment yields are not deterring developers or capital, although that capital has increasingly taken on a more patient and longer-lived nature.
Year-to-date multi-housing transaction volume totals $4.4 billion, approximately twice that of a year ago. This increased volume tracks with institutional investors’ willingness to adopt more flexible acquisition criteria, including scaling down their minimum targeted deal size and considering more suburban locations, such as along Interstate 495. Bidder pools have been deep, with significant competition for quality assets. Core investment opportunities were relatively scarce in the marketplace in 2018 and that trend continued in 2019, as value-added opportunities represented the bulk of market trades.
Despite increased sales activity, investor demand continues to outpace the availability of deals, putting upward pressure on pricing, across product type and geography. Among other impacts, this phenomenon is causing suburban investment yields to begin converging with urban yields for select, well-located assets.
One strong example of this trend is the recent sale of Hanover Foxborough, a deal brokered by JLL. This newly constructed, 248-unit apartment community, located in Foxborough, offers excellent access to the I-95 and I-495 employment bases, nearby MBTA commuter rail access, strong demographics and best-in-class construction. The suburban multi-housing opportunity attracted significant investor interest, including multiple core funds, and JLL procured nearly 20 offers for the deal. The property ultimately traded to a core buyer at a cap rate typically associated with assets located along Route 128 or closer to Boston.
Fast Absorption for New Inventory
The Greater Boston rental housing inventory now totals nearly 220,000 units. Over the past 12 months, absorption has been slightly ahead of the approximately 6,000 new units delivered, generating strong average occupancy at 95.1 percent and nearly 3 percent year-over-year rental growth with the average rent now at $2,318. Greater Boston has approximately 19,500 units under construction, which will deliver over the coming three years.
One of the mitigating forces of new supply remains robust regional job growth, with approximately 117,000 jobs added from 2016-2018. Assuming every five jobs created requires one new apartment home, the region’s trailing five-year job growth has left Boston undersupplied by over 7,000 units. In fact, JLL Research notes that when taking into account job creation and single-family housing additions, Boston is among the 10 most underbuilt major multi-housing markets in the country.
Christopher Phaneuf
Looking ahead to 2020, JLL expects multi-housing transaction activity will be skewed to the first half of the year, as some investors perceive the risk of capital markets volatility, stemming from the presidential election cycle.
The long-term outlook for multi-housing in Greater Boston remains favorable due to inherent geographic and regulatory limits on future supply, housing demand stimulated by the region’s high-paying and diverse jobs base, and liquidity implied by the deep roster of institutional investors active in the market.
Christopher Phaneuf is a managing director for JLL Boston.
