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News release

Chicago

Jones Lang LaSalle 2011 Survey Predicts Continued Increase in Multifamily Investment

Predominance of respondents seeking to purchase value add Investments, dispose of core investments


CHICAGO, Nov. 23, 2010 —The apartment sector of the commercial real estate market appears to have hit its stride and is expected to benefit in the coming year, according to owners, investors and developers surveyed in Jones Lang LaSalle’s yearly 2011 Multifamily Investment Survey conducted at the Apartments Conference in Los Angeles, Calif.  Nearly 93 percent of respondents predict their investment allocation into multifamily product will increase in the coming year, up slightly from the 90 percent who answered similarly last year.  This firm’s annual survey was conducted with more than 100 major owners and investors within the firm’s multifamily commercial real estate arena.
 
“These numbers fall well into line with what we’ve seen nationally in the growth of transaction volume in multifamily product,” said Jubeen Vaghefi, Managing Director and leader of Jones Lang LaSalle’s multifamily investment sales practice.  “Total apartment volume for 2010 is up slightly more than 90 percent through the third quarter, while office and retail have seen lower increases in the 75-90 percent range[1].  In fact, demand for multifamily product is so great, it exceeds supply—causing investors to bid up quality properties.”
 
Acquisition plans 2011
 
Of the nearly 93 percent of investors expected to increase multifamily investment, nearly 40 percent plan to increase investment in the sector by 75 percent or more in 2010. 
 
When asked which type of investment they plan to seek in the coming year—from core product, to value add to opportunistic product and new development or redevelopment—a slight plurality (27 percent) say they’ll put their money towards value add investments, while following close behind are opportunistic (20 percent), new development (20 percent), and CORE (19 percent) plays.  A year ago, an overwhelming majority of respondents (90 percent) say they planned to pursue opportunistic investments. 
 
Disposition plans for 2011
 
Taking advantage of the bidding frenzy for stable, well-located assets, many investors (28 percent) say they plan to dispose of core assets in the year 2011.  In 2010, just 12 percent of respondents said they would do the same.  The disposition plans also revealed:
  • 21 percent say they are likely to dispose of value add investments (down from 22 percent in 2010)

  • 17 percent say they are likely to dispose of opportunistic assets (down from 22 percent last year)

  • 7 percent say they are likely to dispose of new development and redevelopment assets

Cap rates, rents and condos in 2011
 
When it comes to cap rates, rents and the shadow condominium market in the coming year, the survey of top investors and owners garners some interesting figures.  The majority of respondents (34 percent) predict we’ll see an increase in multifamily cap rates of zero to 50 basis points, while another 24 percent believe that number will rise from 50 to 100 bps.  Conversely, 21 percent predict cap rates will fall by zero to 50 bps.  As for apartments rents in the coming year, more than 63 percent believe they will rise by zero to five percent.  This stands in marked contrast to last year’s results, in which not a single respondent predicted any increase in rent whatsoever.  As for the shadow condo market, respondents predict the Southwest and the Southeast will again be most affected—weighing in at 34 percent and 22 percent respectively. 
 
“Apartments have experienced the second-greatest cap rate compression (behind office) thus far in 2010,” said David Young, Managing Director, Jones Lang LaSalle Capital Markets.  “Additionally, apartments are the only property type that seems to be within striking distance of the cap rate levels reached at the peak of the market, prior to the downturn which began three years ago.  We are now seeing national cap rate averages in the low six percent range.”
 
New Development and New Money in 2011
 
The continuing thaw of the capital markets has been a discussion point amongst buyers and sellers for the past year, but according to a majority of respondents (37 percent)--liquidity and pricing equilibrium has already returned, while another 30 percent say it could take another six to 12 months.  Another 22 percent say liquidity will be waylaid for 18 months or more.  Last year, no respondents agreed liquidity had been restored, and more than half (55 percent) said restoration of liquidity and pricing would be achieved within the next 12 to 18 months.  As to where they plan to place that money, respondents to the survey say two regions stand out for potential investment in new development or new investment:  the Southwest at 31 percent and the Northwest at 25 percent.  With regards to construction loans, a majority of respondents (37 percent) say leverage ratios will fall below 65 percent, while another 26 percent predict that range will be more like 65-70 percent.
 
Fannie and Freddie in 2011
 
With yields on Treasury bonds now at record low rates, many are now wondering how Fannie Mae and Freddie Mac will respond in the coming year.  A full 40 percent of respondents say neither government-sponsored enterprise (GSE) will widen its spreads over benchmark rates in 2011.  Another 33 percent believe they’ll widen the spreads by 20-25 basis points, while nearly 19 percent predict those spreads will increase by 40 basis points or more.
 
“Among the four primary property types, including office, retail, industrial and multifamily—only multifamily appears to have begun a true recovery in fundamentals, as opposed to just a stabilization or mere firming of conditions in some segments,” said Jeff Morris, Managing Director, Jones Lang LaSalle.  “As job growth slowly-but-surely continues, and household formation levels return to normal—we expect to see even greater demand for multifamily product in the coming year.”
 
Jones Lang LaSalle Capital Markets is a full-service global provider of capital solutions for real estate investors and occupiers. The firm’s in-depth local market and global investor knowledge delivers the best-in-class solutions for its clients — whether a sale, financing, repositioning, advisory or recapitalization execution. In the last three years, Jones Lang LaSalle Capital Markets completed more than $143 billion transactions globally. The firm’s Capital Markets team comprises approximately 1,500 specialists, operating in 180 major markets worldwide.
 
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 2009 global revenue of $2.5 billion, Jones Lang LaSalle serves clients in 60 countries from 750 locations worldwide, including 180 corporate offices.  The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 1.6 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 approximately $40 billion of assets under management. For further information, please visit our website, www.joneslanglasalle.com.