Britannia Commons, an 88-unit apartment complex in Meriden, was sold last summer as part of a 242-unit portfolio.
Rental growth and sustained occupancy in Connecticut’s apartments are on their way back, according to industry watchers, but it might still be a few months before the rebound becomes evident. Meanwhile, the state’s apartment complexes continue to generate good returns on capital investments compared with many other national apartment markets.
“We fully expect to regain the historically high levels of occupancy most communities in the region have experienced and should see an end to concessions and improvement in occupancy levels toward the conclusion of 2005,” apartment market experts at Marcus & Millichap’s New Haven office said in a new study.
Last year was also a good one for trading in the state’s apartment market. Several sales of large portfolios led to an 88 percent jump in total units traded; the number rose from 2,798 in 2003 to 5,282 in 2004. It is typical for one large portfolio to trade in a year, but 2004 was different, according to Steve Witten, Marcus & Millichap’s senior director of the national multi-housing group.
“We had three or four large projects trade [in 2004],” he said.
Witten and his partner Victor Nolletti closed a couple of those large sales in late December, including the sale of a 23-building portfolio near downtown Hartford and the largest multifamily sale of the year.
The transactions – the Hartford sale and a $48 million sale in Hamden – were some of the biggest of the year. The Hartford transaction encompassed 680 units in the 23 buildings, which are spread just outside of the city’s downtown, many near the corner of Farmington and Sisson avenues. New York-based real estate firm Houlihan-Parnes bought the properties, which are known as the Whitehouse Portfolio, for $30.4 million from the family that had owned the buildings, according to Marcus & Millichap.
The Hamden property, called the Apple Hill Apartments, encompasses 498 apartments and sold for $48 million.
Another 242-unit portfolio was sold earlier in the year. The three-property portfolio included an 88-unit building in Meriden, a 48-unit building in Bristol and a 106-unit property in Manchester.
New Supply
The increase in units traded doesn’t necessarily indicate a huge increase in overall sales activity, Witten said; a number of properties with a high number of units traded hands. Several large properties were sold because their owners reached the end of their mortgages and decided 2004 was an opportune time to divest, he said.
Although the total units traded rose between 2003 and 2004, the average per-unit value of transactions dropped due to a record-breaking sale of a Fairfield County apartment complex in 2003 that pushed up prices that year, Witten said.
“If we sell one significant property, it pushes the value up,” he said.
The average sale value per unit was $57,554 in 2004, down from $74,663 in 2003.
Several of the state’s counties saw significant increases in sales volume last year. New Haven County experienced an increase of more than 200 percent in transaction volume, while Hartford County saw sales volume increase by 65 percent and Fairfield County’s increased by 79 percent.
Vacancy levels in Connecticut were generally healthy compared to the national market. National occupancy rates were around 93 percent. Connecticut’s vacancy rates have matched or been better than national rates and have stayed between 3 percent and 7 percent, depending on location and asset quality. Fairfield, New London and New Haven counties were hardest hit, where concessions of a month or a month and a half’s free rent were common as landlord vied to lure tenants.
Hartford County may see some similar trends in 2005 as projects that include new apartments are completed and the number of available rental units rises.
“There are a number of new projects coming online,” Witten said.
Those will take time to absorb in a market like Hartford. In faster growing cities, like Atlanta, the market can absorb thousands of new apartments as they are completed because job growth keeps up with new construction, Witten said. But the slow job growth in Connecticut means it can take 12 to 18 months to absorb a few hundred new units in any of the state’s market.
But Hartford is primed for growth. Witten said he expects reasonable increases in rents and a healthy increase in multifamily property value. In counties like New Haven and New London, concessions should burn off during 2005 and those counties could see 3 percent to 5 percent growth in rental rates.
“We fully expect the trend toward higher vacancies and greater concessions to decrease by the end of 2005, although certain Connecticut markets will take longer to re-absorb vacant units due to new projects coming online,” Marcus & Millichap’s report stated. “The good news is that occupancy levels will strengthen and the supply-constrained nature of most Connecticut municipalities will preclude overbuilding. With low-cost financing readily available, developers have been reluctant to stop building but compared to other national markets, newly constructed units in Connecticut should be absorbed over the next 12-18 months.
