2013 Jacksonville Apartment Transactions in Review

2013 was a relatively busy year for those selling and buying apartment properties in Jacksonville, FL. My review below focuses on properties that are attractive to professional investors who require onsite management be provided. Eighty units are generally considered the minimum threshold for onsite management, although 100 units are the preferred threshold.

During 2013 the Jacksonville MSA saw 45 arms-length apartment transactions involving 80 or more units having a total value of $708,440,500. Those transactions represented 10,998 units, or approximately 16% of the Jacksonville Metro inventory. That is roughly consistent with a 7-year, albeit highly variable, holding period. The median number of units per transaction was 224, evidencing the preferences of the current institutional buyer profile for larger properties. These properties had a median age of 30 years.

Buyer location preferences followed where the strength has been in Jacksonville employment growth: the Southeast quadrant (see Figure 1). Seventy percent of the transactions were in the Southeast sub-markets of Arlington, South Side and Mandarin. The remaining 30% of the transactions were more or less evenly distributed around Jacksonville.

Figure 1: 2013 Jacksonville MSA Apartment Transactions by Area

Perhaps more interesting is how the transactions broke down by property class. Since the renaissance of the commercial real estate market after the Great Recession, multifamily has been the darling sector. Investors initially sought the trophy Class A properties, many of which were gobbled up in 2011 and 2012. We saw investor interest extend to the Class B and C properties in 2013.

Class	A	B	C
Transactions	4	21	20
Units:
Average	353	249	218
Median	309	240	175
Smallest	240	120	80
Largest	555	480	646
Age:
Average	13	26	41
Median	13	27	42
Newest	7	1	27
Oldest	18	48	54

There were only four Class A property transactions in 2013, with the remaining 41 transactions evenly divided between Classes B and C properties. Property profiles for the transactions by class reflect the expectations for each class, with the Class A’s larger and newer and the Class C’s the smallest and oldest. Nevertheless, buyer preferences for larger properties extended even into the Class C properties acquired.

Pricing was insightful into the market dynamics (NOTE: three transactions out the 45 were excluded from the pricing analysis below due to insufficient or unverified data). Prices per unit were halved as you moved from Classes A to B to C. As investors seek yield opportunities by moving to the lower classes, more of the acquisitions in each of the Classes B and then C properties were distress or REO transactions.

Class	A	B	C
Price Per Unit:
Average	$  129,699	$    65,448	$  32,834
Median	$  118,609	$    65,755	$  30,932
Lowest	$  100,901	$    19,886	$  10,169
Highest	$  180,678	$  128,000	$  84,821
Price Per SF:
Average	$    113.02	$      65.62	$    35.93
Median	$      99.48	$      64.94	$    31.96
Lowest	$      90.00	$      18.23	$    10.08
Highest	$    163.14	$    152.49	$    79.40
Capitalization Rate:
# Reported	2	15	11
Average	6.2%	7.1%	7.9%
Median	6.2%	7.0%	8.0%
Lowest	5.0%	5.8%	6.7%
Highest	7.4%	9.3%	9.5%

Of note:

·        The landmark sale of The Strand Class A high-rise property in downtown Jacksonville skewed the Class A prices per unit higher. However, all of the Class A purchases were for a long-term hold.

·        Amongst Class B buyers, the motivation was equally divided between opportunistic purchases and long-term hold acquisitions.

·        In the Class C price range the highest price per unit paid was for a property in Orange Park (Bridgewater at Wells Crossing) because the buyer wanted the property; the next highest Class C price per unit was a more consistent $55,000 for a Beaches property. Most of the Class C purchases were opportunistic.

Capitalization rates reported were consistent with national trends. Median capitalization rates rose 80 BPS from Class A to B and 100 BPS from Class B to C. The range of capitalization rates in each class was typical and reflective at the low end of the motivation of the Buyer to acquire the property, and at the high end of the property’s distress level.

Implications of the prices paid per square foot will be discussed in a future post.

The buyers for these properties have not historically been located in Jacksonville, and that trend continued (see Figure 2). Our favorable apartment operating trends, as I’ve previously reported, have attracted national attention from investors.

Figure 2: 2013 Jacksonville Apartment Buyers by Home Base

If you would like to discuss these thoughts in more detail, please contact me:
            Paul B. Hazlett
            Multifamily Investment Advisor
            Coldwell Banker Commercial - Benchmark
            904.421.8523
            PHazlett@CBCBenchmark.com