Sales of Marin County apartment properties with five-plus units dropped in 2023 from nearly a half-billion dollars in 2022 to only $62 million last year. Sales of two- to four-unit properties were a respectable $28 million, also down significantly from the previous year.
Rising interest rates for investment properties — now at 6%, but down from the peak rates of over 7% — were responsible for keeping buyers on the sidelines.
At the same time, sellers reluctantly reduced prices to attract a sale or just removed their properties from the market.
Most successful sales last year were all cash transactions or Internal Revenue Code Section 1031 exchange buyers identifying and closing on sales to complete a tax deferred exchange. The majority of sales were for 5-10 unit buildings, with average cap rates of 4.63% and price per unit at $380,433.
Many sellers sold legacy buildings, held by the same family for several generations. For instance, I sold a 5 unit building in downtown Mill Valley for $2,500,000 all cash that had been in the same family since the 1970s. The buyer was in a 1031 exchange and produced an all-cash offer with a 10-day close of escrow.
In another instance, a 4 unit building in Mill Valley was sold by the heirs of a family trust and was reduced from a list price of $2,500,000 to a final sales price of $1,875,000 to account for deferred maintenance at the property.
Because of the continued high interest rates and lenders only willing to lend around 50% against the value of the property, investors remain only lukewarm to entering the market.
Marin apartment inventory is now five times higher than it’s been in the last 10 years. There is an opportunity to get a great deal now by locating motivated sellers with flexible terms.
In 2024 I expect apartment market activity to pick up with interest rate reductions and owners becoming more realistic about the value of their properties.