Marin County apartment building prices softened dramatically in 2018, moving from a hot first-quarter market with multiple offers on many properties to a more balanced market with rigorous negotiating between buyers and sellers throughout the remainder of the year.
Softening rents and rising interest rates over the 12-month period — from 3.75 percent at the low end to 4.75 percent by year-end — accounted for the shifting price points for Marin County apartment complexes. As a result, investors sought higher capitalization rates on their purchases, with closed sales reflecting the new market reality.
For example, a Mill Valley six-unit apartment complex was listed in early May at $3.65 million and sold months later for $3 million, a steep discount from the original asking price. In central Marin, price per unit for closed sales ranged from $207,000 in the Canal area of San Rafael to $430,000 per unit in downtown San Anselmo for a five-unit building.
In 2018, Marin County apartment transaction numbers were about equal to those in 2017, with approximately 20 properties turning over in the five-unit-and-above category in those years. Inventory remains at historic lows, with landlords reluctant to sell and give up anticipated appreciation in the future.
But peak rents, experienced in the years 2013–2017, have ended. Owners are reporting vacant units are staying longer on the rental market. A 30- to 60-day vacancy is now the norm, when just a couple of years ago landlords received multiple rental applications from highly qualified tenants.
As the market changes and rental demand slows, I anticipate that longtime Marin County landlords will reassess their retirement plans and we will see an increasing number of apartment buildings on the market in 2019.
Katherine J. Higgins is a commercial broker associate at Berkshire Hathaway HomeServices / Drysdale Properties Commercial Property Group in San Rafael, a 32-year real estate veteran and top producing broker in the Marin County apartment market.