Hot apartment market sees robust sales

Gene B. Glick Co.’s Aug. 30 purchase of the 240-unit Thompson Village apartment complex on the south side is the most recent deal in a year full of transactions that reflect robust activity in the apartment market, where buyers are attracted by rising occupancy and rental rates and low borrowing costs.

Through August of this year, 26 properties representing more than 5,500 apartment units have sold in the metro area, according to Tikijian Associates, a local apartment brokerage. That’s a 190-percent jump in properties sold compared with the first eight months of 2010, when nine properties representing more than 2,400 units changed hands.

Buyers in the sector have had no trouble finding deals.

“There are still a lot of troubled properties, so there is a continuous supply of lender properties coming to market,” said George Tikijian III, senior managing director of Tikijian Associates. Demand is so strong, he said, that increasing numbers of private investors are selling properties as well.

Tikijian said apartments are attractive as a hedge against inflation, which some economists see as a significant threat in the next few years. Because apartment leases are only for a year, rates can be adjusted frequently to compensate for inflation.
 
Duke Hardy, an associate of Tikijian’s, said apartment buyers have become especially aggressive since the Federal Reserve committed earlier this summer to keep interest rates low into 2013. He said buyers are more willing to close without permanent financing because they’re confident they’ll have time to lock in low rates later.

Some buyers are offering non-refundable earnest money as soon as they put a property under contract, Hardy said. Typically, earnest money is refundable until certain due diligence takes place. “We didn’t even see that during the ‘boom’ days leading up to the financial crisis,” Hardy said.

Tikijian said the Indianapolis market is attracting high-net-worth investors who have been priced out of what are typically the hottest markets—the Northeast and the West Coast. When they look for alternatives to those markets, they look here, he said, because both the city and state have a reputation for having stable, diversified economies.

Not that the demand hasn’t put upward pressure on prices here. Tikijian said prices are up 10 to 15 percent over a year ago.

Those prices are driven in part by rising occupancy and rents, as the apartment market benefits from the depressed single-family home market.

Alex Stokely, vice president of local apartment owner/manager Barrett & Stokely, said occupancy for his company’s portfolio of properties is in the mid-90-percent range, up four to five percent from a year ago. The company owns or manages 50 properties representing about 11,000 units. Rents are up between two and four percent so far this year, which he said is stronger growth than any year in recent memory.
 
The downtown market is especially strong. Occupancy at Riley Towers, a high-rise complex that Barrett & Stokely manages, is 97 percent, the highest it’s been in more than 10 years, Stokely said.

Numbers like those validate the expansion strategy adopted a few years ago by Glick, a local company with a long history in the apartment sector.

The company, founded here in 1947, owns or manages about 19,000 apartment units in 10 states. The company began ramping up its long-dormant development and acquisition activity back in 2008, when a new generation of leadership took over.

By the end of the year it will have added 2,000 units, primarily through acquisition, since that strategy began, said David Barrett, who became CEO in 2008.

It recently bought Thompson Village from Embassy Group, a New York investor that bought the complex from locally based Pedcor in 2006 for significantly less than the $10.2 million it listed for this year. What Glick paid for it hasn’t been disclosed.

The complex, near Thompson Road and State Road 135, was built in 1989, and its one- and two-bedroom units are about 95-percent occupied.

Barrett said Glick expects to close several more acquisitions by the end of the year.

“It’s a very exciting time for our business,” he said, noting that a combination of rent growth and low interest rates provides opportunities for both acquisitions and development.

But with so much demand, “it’s a seller’s market,” he said. “The art is getting a good deal and not overpaying for it.”