Constitution Quarters in Charlestown is reportedly under agreement for about $95 million, or $260,000 per apartment unit.

It is often said that home is where the heart is, and in the case of this year’s commercial real estate investment market, that would certainly hold true. As the dour economy dampens interest in office and hotel buildings, the multifamily sector has solidified itself as the asset of choice for 2001, and there appears to be no indication that will change any time soon.

“Institutional investors absolutely want multifamily,” Nordblom Co. Vice President Jonathan Close said last week. “They have plenty of money to buy these properties right now, and that has created very strong demand.”

Close, who has specialized in multifamily brokerage for the past 10 years, said interest today in buying apartment developments is as high as it has ever been in his experience. Nordblom has already brokered several apartment building deals this year, including the sale of Yorkshire Court in Shrewsbury, a 180-unit complex that recently fetched $14.3 million. The firm also just traded a 46-unit apartment building in Haverhill for $2.68 million, and has a 104-unit property in Malden under agreement.

The latter deal demonstrates just how much appetite there is for multifamily assets at present. According to Close, 20 potential suitors bid on the property, even though it is in need of a substantial renovation by the new buyer. About half of the bidders were institutional players, he said, with the remainder representing private funds.

“Anything over 100 units is in huge demand,” Close said, who would not identify the Malden property’s buyer until the deal is consummated.

One indication of the growing multifamily fervor can be found at the Charlestown Navy Yard in Boston, where Constitution Quarters is supposedly under agreement in the $95 million range. At that price, the 367-unit property would fetch nearly $260,000 per unit, putting it in a league with the priciest deals done locally to date. The price is even more surprising to some due to the perceived need to make capital improvements to the complex.

“It’s a nice property, but it is pretty old and tired,” said one source familiar with the development. A ground lease held by the Boston Redevelopment Authority adds to the complexity of the deal, observers say, but the waterfront location and lack of similar developments on the Navy Yard appear to have overcome at least one investor’s trepidation. Due to strong opposition, previous deals that would have converted the building to condominiums fell apart in the late stages, and sources said they doubt the new buyer would pursue such a path.

CB Richard Ellis/Whittier Partners is brokering the sale, but principal Gary W. Lemire declined comment last week on whether Constitution Quarters has gone under contract. Other sources insisted it has been placed under agreement, but the identity of the buyer remains unclear. If the Constitution Quarters price does bear out, it would rival the per-unit rate paid for some of the region’s newest apartment communities in the past few years, including Cronin’s Landing and Bear Hill in Waltham.

Drop in the Bucket
In any event, Lemire did agree that the multifamily sector has been a steady performer throughout the year, with CB/Whittier itself brokering several such transactions. Along with a 216-unit property the company just sold in Rhode Island, CB/Whittier has also recently sold apartment developments in Beverly and Gloucester.

The biggest challenge, said Lemire, is finding investment-grade properties in the Massachusetts market. A recent study by the National Multi Housing Council revealed that only 19.1 percent of the apartment stock in Massachusetts has been built since 1979, placing it 49th nationally. Only New York State finished lower with its 11.4 percent mark. On the other end of the spectrum, 72.1 percent of Nevada’s apartments have been built since 1979, trailed by Arizona at 65.2 percent and South Carolina’s 61.2 percent. Overall, Massachusetts has about 416,000 apartments, according to NMHC.

The result locally is that much of what is being sold is older quality developments, Class B-rated complexes that typically require some level of investment for renovation by the new owner. One such asset on the market now is the Garden Crest apartments in Waltham, a 700-unit project that is being marketed by Meredith & Grew. According to sources, the development has received a range of interest that includes joint ventures, pension funds and even a few individual suitors. Bids on the property are due to be received by next month.

Investors are willing to look at older properties locally for a number of reasons, said Close, including the perceived barriers to entry for new multifamily construction. High land costs, community opposition and a lengthy permitting process all contribute to the inability to add new supply, he said. While Nordblom has tracked about 17,000 new units in the Bay State’s development pipeline, Close noted that some of that will not get off the drawing boards for various reasons, and those that do move forward will pale in comparison to projected demand.

“It’s just a fraction of what we really need,” he said. “It’s a drop in the bucket.”

As for investment sales, Close said he believes more apartment communities will become available in the coming months as owners come to realize the amount of capital available for such assets. “People are definitely thinking more about selling, and I think it’s a good time for them to be thinking about it,” he said. “The demand is so great and the money is so cheap, [investors] can pay more today.”

Many Investors Attracted To Multifamily Housing

by Banker & Tradesman time to read: 4 min