Nearly two years ago, Greg Petry and a partner bought two charming, period apartment complexes in downtown Vancouver. The 28-unit Fontana Court and nine-unit Uptown Villas were renovated and put up for sale at prices geared toward first-time home buyers.
None of the units, however, sold.
But recently back on the market as apartments, both buildings were full within two months, said Petry, director of Crimson Capital, a Portland-based commercial real estate investment company.
The rental market is strong in Vancouver, and investors – many from neighboring Portland – are taking note.
Hitting high marks
Since June, Hagerman Frick O’Brien has brokered nearly $80 million worth of apartment sales in Vancouver. This includes the $26.6-million sale of the Meadow Wood apartment community in January and the $26.7-million sale of the Prairie View community in late December.
The two complexes happen to be less than two and a half miles from each other in East Vancouver.
Other sales include Sedona at Bridgecreek – formerly Bridgecreek Terrace – which changed hands for $13.15 million, Village on Seventh for $8.3 million, Hidden Village for $3.9 million and Maplecrest Apartments for $1.1 million.
Of the six sales Hagerman Frick O’Brien brokered, three buyers were from Portland, two from Vancouver and one from California.
Nearly hitting the $80 million mark is unusual for the Clark County market, only because the probability of two deals of Meadow Wood and Prairie View’s size closing in the same area at roughly the same time is low, said Gregory Frick, partner in the Portland-based brokerage.
“Capital markets have changed,” Frick said. “Financial institutions are lending money, but they’re looking at it more closely. You read about foreclosures on single family homes, not apartments.”
Following the exodus
The current landlord-favored market is an invert from the fallout of the single family home market, said Charlie Kleier, multi-family and investment sales specialist at NAI-Norris, Beggs and Simpson’s Vancouver office.
“When people were able to buy homes with next to nothing down, there was an exodus from the apartment market,” he said.
Interest rates were low, underwriting wasn’t being greatly scrutinized and more people qualified for loans than ever before, Kleier said.
“Now construction of new product is down, supply is down and demand is better,” he said. “It’s a simple supply and demand situation.”
Vacancy in Clark County apartments dropped from 6 percent to about 3.5 percent in the last three years. When vacancy dips below 5 percent, rents begin to increase.
Rents in Vancouver have seen a solid increase in the last two years, Petry said, with downtown apartments leasing for $1.30 to $1.70 per square foot.
Rents are on their way up, but at a more moderate rate than in recent years, said Michael McKenna, principal and president of Portland-based Summit Real Estate Management, who bought the Meadow Wood community from Orchards Retirement LLC.
Summit owns 4,200 apartment homes in 14 communities, primarily in Portland.
“I think the housing market is still going to be OK,” said McKenna, who lived in Vancouver for a number of years and developed several properties here.
“It’s a cycle thing – now is a good time for apartments, but four years ago, it was not a pretty picture. We focus on the good and forget about the bad – real estate is a long-term view for us.”
A second-tier market
Local investors are getting back into the game, Frick said, but there is still a lot of investment money coming from California.
“This area has always kind of been a second-tier market – it’s not a major market like San Francisco or New York – but the fundamentals are very, very strong,” he said. “Now local money is getting more aggressive. They got through the rough patch when vacancies were high with no rent increases, and now they’re able to re-invest or get more units.”
McKenna also said he views Clark County’s investment market as strong.
Though there hasn’t been much new construction of multi-family units, there appears to be strong inward migration and rents haven’t met the threshold that would justify new construction, he said.
“It’s probably slipped off the frenzied list to the rational list,” McKenna said. “It had gotten so frenzied, I believe pricing was difficult to deal with. Now it’s more somber, more realistic.”
With lower interest rates, investors are able to buy more product than they could otherwise – making this an attractive time to buy, he said.
Condos still an option
Petry said he isn’t bothered by having to rent Uptown Villas and Fontana Court as apartments because he plans on keeping the buildings long-term.
When they were for sale as condos, the units were priced between $109,000 and $170,000, but Petry suspects the first-time home buyers market has been hit harder than other segments.
Unable to secure loans in the tightening lending market, many younger people don’t have savings for a large down payment, a long employment history or the best credit scores.
“We had some offers, but a few people couldn’t qualify for loans,” he said.
Plus, Frick pointed out, there was is an oversupply of condos on the market.
So why sell an apartment complex if it’s a landlord’s paradise now?
It’s an age-old question, McKenna said.
Some want to put the cash to use in other areas, some are looking to upgrade their investments and some just want to spend it, he mused.
“There is a certain percentage of buyers and sellers for whatever reason,” Kleier said. “It’s the normal rollover of property … The message is that there continues to be plenty of buyer appetite for all investment property.”
Petry hasn’t ruled out putting the complexes back on the market as condos.
“For the first time in a long time, buyers have choices,” he said. “They can really shop around and find a good house or condo at a good value … It was such a good time to buy that we were not in a good position as sellers. We’ll wait for a more even-handed marketing period before putting the units back on the market.”
Megan Patrick can be reached at mpatrick@vbjusa.com.
