The apartment building market is very slowly picking up momentum. Halfway through the year, there were three properties on Oahu that sold. This is about double the pace of last year. These mixed-unit projects from 8-16 units have been selling in a range from $156,000/unit up to $194,000/unit, depending on location, current rents, and amenities.
Activity is being driven by investor confidence that rents have leveled off and will not be dropping in the future.
Currently, there are 24 apartment buildings available for sale on Oahu. Of these 24 properties, 14 of them have been on the market for over 1 year.
Year to date, there has only been one apartment building sale in the State of Hawaii. This is due to a number of factors, but mainly buyers’ fear of rents being on a downward trend. Rent adjustments vary market by market and seem to be holding the strongest in the better buildings located in the core part of the city. One of our clients, who own a dozen buildings, told us they have had to reduce rents 20% to keep their properties at 96% occupancy levels. Financing for many of these properties is still available and is one category of property where non-recourse financing is still available.
Currently on the market there are 45 apartment buildings for sale in Hawaii. With the slowdown in the velocity of sales, rates of return are going up on these properties. A quick look through the available properties today reveals that two of the 45 properties are offering a 10% initial return (both are located on the neighbor islands) with a high return for Oahu properties pegged at 8.4% at asking price. The vast majority of the properties being offered are being offered at 6.5% or lower initial returns.
We expect to see a pick up in the last quarter of the year in sales due to pent up demand, available financing, and some stability in the market coupled with the need for year-end closing.