Canadian investors poured approximately U.S. $1.3 billion (CAD $1.7 billion) into U.S. multi-family acquisitions in the first half of 2015, representing more than 30 per cent of foreign investment in the sector. That’s already set to nearly double in the third quarter when Brookfield Asset Management’s U.S. $2.4 billion (CAD $3.1 billion) deal for the 51-building, 13,000-unit Associated Estates portfolio is slated to close.
CBRE analysts place this in the context of this year’s active U.S. multi-family market, which saw trades totalling U.S. $63. 2 billion (CAD $83.4 billion) from January to June — a 38 per cent increase from the same period one year earlier.
“This large gain is partly a reflection of the unusually slow quarter experienced Q1 2014, but it also confirms continued confidence in the future performance of multi-family,” CBRE’s recently released North American cap rate survey report states.
A look at 46 U.S. and 10 Canadian markets confirms low and falling cap rates on both sides of the border. In Canada, cap rates for urban high-rise (which CBRE characterizes as “infill”) multi-family buildings are the lowest of any property type or class, now at an average of 4.41 per cent, down 13 basis points from the first half of 2014. In the U.S., where multi-family high-rise properties are further categorized as Class A, B or C, the average Class A cap rate is 4.57 per cent, down eight basis points from the previous year.
“Infill multi-family cap rates are the second lowest of all product types (in the U.S.) for Class A, just above high street retail,” the CBRE report states. “Infill multi-family is also, arguably, the furthest along in the property and capital markets cycle.”
In the surveyed Canadian markets, cap rates are lowest in Toronto, Vancouver and Ottawa and highest, in the range of 5 to 5.5 per cent, in London/Windsor. Calgary is the one market where cap rates have increased — now pegged at 4.25 to 4.75 per cent — which is in sync with that market in general.
“In the last nine months we have seen investors’ cap rate expectations move up in the Alberta markets by anywhere from 25 to 100 basis points,” says Chris Langstaff, senior vice president, research and strategy, with LaSalle Investment Management. “There has recently been an increase in bachelor and one-bedroom apartment vacancies in Alberta — presumably as unemployed oil sector workers have been forced to move back home — while 2- and 3-bedroom units have maintained low vacancy.”
