There was a marked rise in the perceived value of Richmond multifamily real estate in 2017 from a year ago, especially for Class B value-add properties. In 2016, the big story locally was the sale of the CORE portfolio of three communities for roughly $81 Million. The highest value was that of the 210 unit Champions Club at $110,000. The sale set a new bar for 1980’s vintage garden communities in the region but that record was shattered in 2017 by the sale of the 340-unit Wellesley Terrace at $151,000 per door. In less than one year, the perceived values for a Class B value add 1980’s vintage community near Short Pump in Henrico County escalated nearly 50%.
Those sales were not anomalies in the market place. Copper Springs in Henrico County closed out the year at $148,000 per door, and Hunter’s Chase, a property in dire need of upgrades, in Chesterfield County, closed out at $131,000 per door. Millspring Commons, a rental townhouse community near Hermitage HS in the northern part of Henrico County closed at $130,000 per door. Huguenot Village, a townhouse rental community near the Chesterfield Town Center, sold for $135,000 per door. All of these properties ranged from 210 to 300 units, so the total dollar volume of each sale was phenomenal for this market. Although cap rates can be calculated in any number of ways, well located Class B properties in the region sold in the range of 5.5% CAPs.
The new tax bill has added a driver to the market for 2018. Cash flows will be taxed at lower rates than ever before and the gains on sales will be taxed at lower rates as well. The 1031 taxed deferred exchange was preserved as an option for sellers. If the attendance and energy of the NMHC conference in Orlando is any indication of the market’s strength, 2018 will bring along another string of
record breaking sales to the Richmond market.
History has taught us that every market peak is followed by a “correction”. Chris Lee of CEL Associates, a national consulting firm, is quick to point out that every economic downturn in the last fifty years has begun with the number “7”, “8”, or “9” in the right hand column. However, he also points out that regardless of the economy, when you graduate from high school, you rent. When
you graduate from college, you rent. When you get married you rent. When you divorce, you rent twice! Will market demand for apartments, the momentum coming into 2018 and the new tax law be enough to overcome history? We believe that 2018 will be a very big year for apartment investment.