Sunset Ridge Apartments Sold For $17.7M

Just wondering- why this purchase is newsworthy?

Tom, Paul, and I have noted that large multifamily buildings and complexes have regularly sold for well over their appraised values in the past two years. As Tom notes, this complex sold for well under its appraised value (about 72% of appraised value)..

There are at least three possible explanations for this. The market may have been unusually frothy over the past few years, and prices are beginning to move closer to those based on actual revenues. (This would be good for tenants in the mid- to long-term. Not so good for the city budget or taxpayer.) Alternatively, the economics of subsidized housing developments such as this may differ substantially from those of market rate developments, in a way not fully captured in the assessor’s valuation. Or this sale may simply be an outlier.

CY2, Tom regularly reports real estate transactions, many of them quite ordinary. This one does rase some questions as to the state of the multifamily market.

Dennis, that was what I was suggesting in my second point. As you know, part of a commercial property’s market value is based on the net revenue it brings in, part on its appreciation potential. I suspect that the debt service on the CHFA loan is not particularly high - CHFA charges below market interest rates. But there may be conditions of the loan that limit future revenues or appreciation potential.

Another explanation for the relatively low purchase price as compared to the Tax Assessor's valuation of the property is that many units are vacant and need to be filled and/or maybe capital repairs/improvements are required for the property in order to attract tenants or meet minimum code requirements.

CY2, CHFA offers low interest construction and mortgage loans to developers/owners of multifamily housing. The current mortgage rates range from 5.7% to 6.4%. Participation in its programs is entirely voluntary. But participants must charge rents that are affordable to low/moderate income tenants.

Picking up on New Haven Urbanism’s first point. we really don’t have a good sense of what the current vacancy rate is, particularly at the neighborhood level. Some level of vacancies is inherent in any market. And landlords can take apartments off the market for entirely legitimate reasons, such as repairs or renovations. But large scale landlords can also take apartments off the market for strategic reasons, to maximize long-term revenues. This will not work for small-scale landlords. But it is an option for large scale landlords with market power, particularly if they own a number of affiliated LLCs.

CY2, I’m not aware of Yale doing this with residential buildings (which doesn’t mean it has not happened). Yale certainly has a strategic development plan, but as far as I know, it deals with academic buildings.

A property owner has no obligation to rent out all of their units - banking is legal. But in the case of residential property, it can artificially increase rents. I think it would be useful for the city to find out if that is happening here.