West Hartford’s 577 Prospect Apartments recently sold for $83,667 per unit. Activity in the state’s apartment market has remained solid this year following a strong 2005.
Minimal new construction and continued interest from investors kept the apartment market strong in Connecticut over the first quarter of 2006, and brokers expect the rest of the year to remain steady.
Transaction velocity was significant in 2005, and while the number of trades may be down this year, Steve Witten, a broker with New Haven-based Marcus & Millichap, predicts the dollar value of the transactions will be up.
“We do expect to exceed that [this year],” he said.
The year started off strongly in February with the sale of two Middletown apartment communities for $73.25 million. The activity continued last month when Witten and his partner, Victor Nolletti, sold a 24-unit complex in West Hartford for about $2 million.
“We’ve got a fairly strong market,” Witten said.
The employment base in the state has been fairly strong and provides a backdrop for a steady apartment market in 2006, according to a report from Marcus & Millichap. The report indicates asking rents are expected to increase between 3 percent and 5 percent and vacancy is expected to decrease by 1 percent to 1.5 percent.
“Connecticut is well positioned for continued long-term growth in both occupancy and rental rates,” according to the report.
Vacancy is expected to fall 20 basis points in 2006, to 8.8 percent. Asking rents for Class A properties are expected to rise for the first time since 2001, up 1 percent to $1,527 per month.
According to the report, the median sales price per unit held fairly constant from 2004 to 2005, rising from $81,400 to $83,300. Much of the sales activity in 2005 occurred in New Haven, Bridgeport and Stamford, involving mostly smaller properties. Because of the lack of new development, investors have continued to show their interest in existing properties. Witten and Nolletti expect a shift in investor focus from selling assets soon after purchase to raising property income by increasing occupancy and pushing rents higher.
Another new trend – more cautious underwriting – also has become apparent, Witten said.
“The one big change in this market is that there’s a slightly more cautious approach to underwriting deals,” he said.
Positive Signs
Witten and Nolletti’s most recent sale, that of 577 Prospect Apartments in West Hartford, is significant, Witten said. The price of $83,667 per unit for an older, vintage brick building “establishes a precedent in value for that market,” Witten said. It is also significant because the buyer intends to maintain the building as an apartment complex.
“It’s significant just because this is not a condo conversion,” he said. “It’s a straight apartment deal.”
The apartments were built circa 1900 and include one- and two-bedroom apartments.
The sellers were Ada Prospect LLC, Bilbo Prospect LLC and KWK VI
LLC, who were represented in the transaction by Steven Katz of Rome &
Katz. The buyer is a newly formed limited liability company.
Earlier this year, Witten and Nolletti completed the $10.2 million sale of a 120-unit East Haven apartment complex.
Over time, there are positive long-term signs, like employment gains from planned projects and increasing demand for apartments in the downtown areas, according to the report. The markets in the Northeast remain desirable for many investors, although sales in some states, such as Massachusetts, are slowing, Witten said. Connecticut, however, continues to see a lot of trades.
“Rental fundamentals remain quite strong and with nominal new construction the Northeast will continue to outpace most other national markets in rent growth and overall appreciation in value,” according to the report.
Witten and Nolletti said they expect demand for apartments in New Haven and Stamford to continue to be stable due to the area’s relatively older population, modest employment and population growth and high cost of housing.
Vacancy is lower than the market average in Stamford and Bridgeport, and the lack of developable land has led to a push for the redevelopment of downtown buildings.
“Stamford’s strengths are its waterfront properties and accessibility to New York City,” according to the report, “both of which make the city attractive to residents and high-end developers.
“Development activity will remain minimal this year as builders are expected to remain on the sidelines until fundamentals show greater improvement. In 2006, 500 units will be added, compared with 600 units last year.
“In Bridgeport, the downtown area is being reshaped as part of a phased project called Downtown North. The first phase involves the conversion of the Citytrust Bank building into 118 rental apartments and 29,000 square feet of commercial space. The project seems viable in spite of the high vacancy rate, since demand is expected to increase in the near future.”
New Haven’s market also is expected to remain strong, in part because of its large and growing student population, and because of a lack of single-family construction. Downtown New Haven has experienced revitalization and has become popular for residents priced out of the New York market. The $430 million Yale-New Haven Hospital Cancer Center is expected to create more than 500 jobs, as well as 350 construction positions.
