Some apartments are looking like money trees to owners, and money pits to the tenants. “I think both buyers and sellers look at this [multifamily] market and say that, at least in contrast to the stock market, it’s tough to replace the type of yields or returns on investments that you get in the multifamily business,” said Steve Witten, vice president at New Haven-based Marcus & Millichap Real Estate Investment Services. “So we look at both private and institutional investors, as well as a lot of the fund operators – pension funds, insurance funds – and they’re looking to get 7, 8 and 9 percent returns.” Witten and Victor Nolletti, both senior directors of the National Multi-Housing Group at Marcus & Millichap, prepared a recent report on the Greater New Haven market stating that in the past year, vacancy rates have declined by 1 percent to 4.1 percent, while the average asking rents rose 2.5 percent to $1,074 per month. Among the apartment complexes that sold in the county during 2007, the average price per unit was $81,000, up from $67,000 the year before, according to the report. For renters, the economics of apartment living aren’t as rosy. “For Connecticut, fair market rents increased by 40 percent, and the housing wage increased by 40 percent, since 2000,” said Jeffrey Freiser, executive director of the Connecticut Housing Coalition in Wethersfield. “Certainly, there has been a steady increase year after year. As the economy worsens, the burden on families making moderate incomes intensifies.” The housing wage – defined as the amount a person must earn to afford a typical two-bedroom apartment, without spending more than 30 percent of total household income on housing costs – has climbed to $21.11 an hour, according to a report from the Connecticut Housing Coalition and the National Low Income Housing Coalition. The same study also found that the average wage among Connecticut’s 431,928 renter households is $16.53 an hour, which translates into a housing wage for a monthly rent of $860. The typical rent for a two-bedroom unit runs $1,098, noted the report. The gap between rents and income means fewer jobs pay enough to make a two-bedroom apartment affordable, Freiser explained. Of the 678 different occupations tracked by the Connecticut Department of Labor, nearly half of them, 325, do not earn enough on average to afford a two-bedroom apartment, he added. That list of the 325 jobs falling short of the needed wage includes bank tellers, law clerks, nursing aides, paramedics and computer operators, according to the housing coalitions’ report. “Local towns are increasingly realizing that affordable housing is genuinely an asset for their communities,” Freiser said. “Businesses will not locate or expand here, if their employees can’t afford to live here. So if we want a growing economy, we need housing that’s affordable.” ‘A Very Strong Market’
For investors and owners, however, the economics of multifamily properties are fine as they are. “We’ve not really seen a drop in value for larger investment properties, especially in apartment buildings. In Connecticut, it just hasn’t happened,” said Sandy Strickling, a broker with Keller Williams Realty’s Commercial Division in West Hartford. “Investment properties have not followed the residential market.” Strickling and her partner, Lisa Mulvey, helped broker an $86 million deal in Hartford earlier this year. In that transaction, a New York-based investment group that listed Robert Sandell as a principal purchased about 2,000 units in more than a dozen properties. Strickling and Mulvey are also the listing agents for a couple of multifamily buildings on Sigourney Street in Hartford, totaling 41 units priced together at $2.26 million. Witten said he is working on eight different multifamily transactions, and in seven of those cases, the deals are exceeding the owners’ expectations. “With the combination of reasonably low interest rates, a lot of liquidity in the market and reasonably strong apartment fundamentals, we’re seeing property values hold up extremely well,” Witten said. “It is a very strong market. I would certainly argue that not every property is performing as well. And it simply has to do with property management, attention to details, etc.” Owners may have another consideration before they sell: the next property. To defer taxes from the sale, owners can sink money made from the old property into a new one. If no new deal is on the horizon, however, owners may be reluctant to give up what they already have, Strickling noted. “It is very hard to get your hands on the larger properties,” she said. “I talk to a lot of owners, and many of them are still not ready to test the market. “If [owners] don’t have a [next] property already selected or in mind, and they have a good-performing property, they’re just a little cautious and apprehensive.”