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News release

Washington, DC

Jones Lang LaSalle:  Multifamily in the MidAtlantic Stays Strong in 2012

Investors looking to portfolios and secondary markets to juice returns


WASHINGTON, D.C, Mar. 5, 2012 —  Thriving market fundamentals driven by limited new supply, a healthy job market and heightened renter demand have made the MidAtlantic region one of the most sought after investment markets in the nation—particularly in the multifamily sector.  That consistency will drive another strong investment year ahead, according to the more than 300 multifamily brokers, investors and developers who attended RealShare’s Apartments East conference in Washington, D.C. in mid-February.  However, many believe portfolios and secondary markets will pique renewed interest as investors seek to increase yields in this very competitive sector of the market.

“In 2011, we saw cap rates fall to near-record lows in the Mid-Atlantic, driving top investors to seek out low-risk Class A deals and high-yield Value-Add assets,” said Jubeen Vaghefi, Managing Director and leader of the firm’s Multifamily Investment Sales team.  “Large institutional players and REITs are the most dominant buyers in this region as they have tremendous access to capital and are able to compete for assets where smaller buyers tend to be outbid.  We expect to see those buyers moving towards even more portfolio purchases in the year ahead, while smaller buyers will gravitate towards secondary markets.”

Investor demand for bulk transactions caused Class B portfolio sales to account for more than 20 percent of the more than $4 billion in total transaction volume in the DC metro area in 2011 and that trajectory is expected to continue with even greater force in the year ahead.

“Both private companies and REITs are repositioning their portfolios this year which will translate into larger transactions,” said Al Cissel, Managing Director, Jones Lang LaSalle MidAtlantic Multifamily Capital Markets.  “We’re also seeing an increase in foreign investors seeking to stake a claim in the DC region—knowing that it’s far more efficient to buy and manage six to ten properties, rather than just a single property on a one off basis.” http://youtu.be/nKCC07BXI7c

On the outskirts of the MidAtlantic market, Philadelphia also made huge gains in transaction volume in 2011 and that pace is expected to continue in 2012.  According to Real Capital Analytics, Philly saw 20 trades at a value of $408.9 million—up 107 percent over the year prior.  A majority of buyers consists of both domestic institutions, and high net worth private investors.

“The Philadelphia market has a stable base of ‘meds and eds’ which consistently creates strong renter demand,” said Erin Miller, Vice President, Jones Lang LaSalle MidAtlantic Multifamily Capital Markets. “That’s part of Philly’s draw:  it’s stable and consistent and is a welcoming bright spot for many investors who may have been priced out of other more expensive MidAtlantic markets.” http://youtu.be/RFMOqBaEe8U

Life companies are becoming increasingly competitive with their financing for multifamily, rivalling Fannie Mae and Freddie Mac with their low rates and strong terms. That strong availability of capital has marked a return to development in the DC metro with approximately 33,000 units expected to deliver by 2014.  Location and quality define the new product now hitting the market.

“We currently have about 3,500 units in the pipeline mainly in the DC region, but moving into Philadelphia as well. This year, we’re focusing on execution and we’ve begun to retract a bit from looking for new land,” said Toby Bozzuto, President Bozzuto Development Company.  “We design our units to higher than a condo spec… we try to build a very high finish—not trendy—that’ll be around for a very long time.” http://youtu.be/Y9b5pf6QsjA

In Part II of Jones Lang LaSalle’s look at Multifamily in the MidAtlantic expected in early March, we’ll explore the strength of the multifamily development pipeline and whether or not experts believe a bubble may be forming in this most attractive of investment sectors. 

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About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a financial and professional services firm specializing in real estate. The firm offers integrated services delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2011 global revenue of $3.6 billion, Jones Lang LaSalle serves clients in 70 countries from more than 1,000 locations worldwide, including 200 corporate offices.  The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 2.1 billion square feet worldwide. LaSalle Investment Management, the company’s investment management business, is one of the world’s largest and most diverse in real estate with $47.7 billion of assets under management. For further information, please visit our website, www.joneslanglasalle.com.