Boston Realty Advisors Spots a Rise in ‘Middle-Market’ Apartment Investments
Boston’s flood of new high-priced, downtown apartment properties seems to be doing little to sour investors’ appetite for the market.
They just want smaller bites.
A new report from Boston Realty Advisors suggests that investors are turning to the market’s “middle-range” properties – older, smaller communities that charge cheaper rents – while the high-end rental market sorts itself out. Sales of apartment buildings between $1 million and $5 million were up 33 percent according to BRA, and topped $1 billion combined.
That surge happened while Boston’s overall apartment sales market actually fell. According to CoStar, all apartment sales in Boston in 2018 totaled $2.7 billion, down from $3.3 billion in 2017.
But BRA figures Boston’s abundant triple-deckers and brownstones are fueling the sales, while the new gleaming steel-and-glass properties downtown are getting hard to stomach. Rent growth for new apartments has slowed to zero, CoStar’s numbers show.
CoStar research also reflects the effect of a tsunami of new development. There are currently 20,000 new apartments under construction, almost all luxury high-rise properties in downtown. That’s a full 9.8 percent of the market’s total inventory, more than double the national average, according to CoStar research.
“Rent growth for 4-, and 5-Star luxury product slowed to essentially zero in 2016 in response to a particularly large delivery wave, and will likely decelerate ,” according to CoStar’s latest research.
Young people renting in the third-most expensive market in the country are choosing cheaper digs. “In fact, Boston has the highest percentage of college students of any major city in the United States, “ according to the latest CoStar market report on Boston’s rentals. “Most of these college kids live in 1- and 2-Star buildings or in the shadow market of condo and single-family home rentals.”
Investors have picked up on that.
New York’s Clarion Partners made headlines at the start of 2018 when it paid $238.7 million, or $690,000 for each unit, for the brand-new Watermark Seaport. That seemed typical of the high-end market of Boston’s recent years.
And while the $380 million sale of a portfolio of suburban apartments from Lone Star Funds this month also attracted much attention, smaller deals also proliferate.
Earlier this month, the 20-unit Commonwealth Manor, at 1246 Commonwealth Avenue in Allston, Massachusetts, a neighborhood popular with college students and recent graduates, sold for $6.4 million, or about $320,000 for each unit, according to CoStar research.