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For multifamily investors nationwide, concerns about falling rents and rising vacancy has resulted in a decline in prices for apartment buildings. The “capitalization rate,” which measures the relationship between the price and cash flow of properties, increased yet again this time one-quarter of one percent from the second quarter of 2007 to second quarter of this year, according to Real Capital Analytics Inc., a real-estate research firm. The cap rates are now at levels last seen at the end of 2004, the firm says.
The decline in prices has led to a pickup in sales activity across the nation. Real Capital Analytics reported last month that sales in June were “well above” recent months’ figures, with $5.5 billion already having closed or in contract in the third quarter compared with $8.7 billion in sales in the second quarter.
Multifamily apartment building sales already were far outpacing deals involving other commercial property, such as office buildings and strip malls. The availability of credit from government-sponsored Fannie Mae and Freddie Mac has buoyed values and fueled new deals. Turbulence at the mortgage titans, which together with Ginnie Mae hold 35% of the mortgage debt on multifamily housing, riled apartment owners last month as investors worried about the fate of Fannie and Freddie. But those worries dissipated as the housing bill signed into law last month made the government’s implied guarantee of Fannie and Freddie’s $5.2 trillion in mortgage securities more explicit.
There appears to be no indication that the hunger for these multifamily loans by the government backed agencies will end anytime soon. Indeed, Fannie Mae announced last month that it would increase its commitment to buy loans on multifamily housing of up to $5 million to provide additional liquidity for rental housing. Fannie said it invested $20 billion in multifamily housing in the first half of the year. While that is down 25% from $27 billion in the first half of 2007, the number of total deals has fallen by 45%. Multifamily also remains a safe investment so far this year: Delinquencies on Fannie- and Freddie-backed multifamily loans in the first quarter were just .09% and .04%, respectively.
Here at the RE/MAX Napa Valley office, RE/MAX Cornerstone Commercial I specialize in multifamily investment real estate. I am an avid student of the bay area market with an emphasis on the Napa Valley wine country. Put my 16 years of experience and expertise to work for you in your next multifamily real estate investment. You can contact me Mike Bolen at 707-254-9999 or Mike@MikeBolen.com.

This article was written primarily by Nick Timiraos with the Wall Street Journal