Out-Of-Town Investors Drive Boston Multifamily Sales To 2-Year High

The Greater Boston multifamily market caught fire this summer, as investors poured hundreds of millions of dollars into apartments across the region.

Multifamily sales volume totaled $1.4B in the third quarter, four times more than the prior quarter and the highest level since the second quarter of 2022,  according to Real Capital Analytics data compiled by CBRE.

Of the 11 sales that closed in Q3, nine were from out-of-state investors, and four were from institutional investors. Multifamily sales brokers told Bisnow the influx of investor interest is due to a shift in sentiment surrounding interest rates and an attraction to Greater Boston — its relatively low supply of new apartments creates prospects for high rent growth.

"Every investor that we're talking to wants to be in a place like Boston or Greater Boston just given the cycle-resistant demand drivers,” said Berkadia Managing Director Adam Dunn, who brokered a $102.5M sale in Jamaica Plan last week. “Greater Boston is perceived as a much safer investment and a less risky investment.”

CBRE Vice Chairman Simon Butler said sales volume has picked up this year due to increased optimism around interest rate cuts and rent growth in the Boston market.

"You have continued to see both rent growth and renewal rent growth, which is not always the case in every other market around the country," Butler said. "Boston's been pretty darn consistent."

Butler’s team last month closed the largest deal of the year thus far: the $221M sale of the 696-unit Gardencrest Apartments in Waltham to San Francisco-based FPA Multifamily.

The deal was one of several big sales that closed in September, which made it one of the strongest transaction months of the year. Butler said the property drew more competition from investors than the seller initially expected. 

"Our client was pleasantly surprised by the level of the depth and quality of the buyers there," Butler said. "I think our client was pleased to see the level of interest. Obviously, it was a large transaction, but I would say it was a highly competitive process."

The deal beat out the July sale of the 29-story AVA Theatre District to San Francisco-based Carmel Partners for $212M, which previously held the crown for the year’s largest multifamily transaction.

In mid-September, Los Angeles-based TruAmerica Multifamily acquired the 324-unit The Villas at Old Concord multifamily community in Billerica for $114.5M, according to public records. The community marks the firm’s fifth investment in the Greater Boston area.

Near the end of September, New York investor Pantzer Properties acquired the 195-unit The Point at Waltham multifamily property for $91M from Alliance Residential Co. The firm also secured a $59M mortgage for the property from Massachusetts Housing Partnership. Both deals were brokered by Newmark.

Last week, Berkadia’s Dunn and Managing Director Chris Phaneuf brokered the sale of the Velo Forest Hills, a 250-unit apartment building in Jamaica Plain, for $102.5M to TIAA subsidiary Nuveen. Dunn told Bisnow he is seeing more institutional investors ready to deploy cash.

"It's a major shift from who's in the market eight to 12 months ago when it was much more of a private capital-dominated market," Dunn said. "Today it's much more of an institutional-dominated market."

For many investors looking to buy up new multifamily development, the Greater Boston market has consistently been a less risky option compared to growth markets in the Southeast and Sunbelt, which saw significant growth during the pandemic but are now seeing those numbers retreat.

"Two to three years ago, the southeast and the Sun Belt were very lucrative. They had much stronger rent growth. They had the mass migration out of the pandemic,” Colliers Vice President Kendin Carr said. 

But now that a surge of new buildings have delivered in those regions, Carr said it is pushing rents down. Meanwhile, the relative lack of new supply in the Greater Boston market has created more opportunities to raise rents and drawn more investor demand.

The slowdown in Greater Boston’s multifamily development occurred because of high interest rates, rising material costs and a notoriously strenuous development landscape. Several projects have stalled in the region, including HYM Investments' 10,000 units at its Suffolk Downs project in East Boston and Revere.

"There's a real need for more development of housing," Dunn said. "Cost and yields just don't work. Development is just not feasible, and as a result, we're seeing tight vacancies and outsized rent growth in the downtown urban core, which is simply making housing unaffordable to a lot of people."

Leaders have pushed a handful of initiatives to support the growth of new housing, including Mayor Michelle Wu's pledge to invest $100M in housing starts, Gov. Maura Healey's $5.2B housing bond bill and the state's MBTA Communities zoning law.

However, those are long-term solutions that don't have much impact on the short-term fundamentals that are drawing institutional investors to Boston.

"In the short term, I don't think there's an impact at all, which is why there's such barriers to entry, and why all investors want to be back in this market," Carr said.

Brokers are confident that more investment will flood into the market throughout Q4 and into the new year.

"September was the most active month we've had this year by far," Carr said. "Unless something dramatic happens with the [election for] president or global issues, I think we'll definitely see more transactions."

Berkadia's Dunn said that the activity happening now could be fueled by loan maturities and other big milestones that landlords need to address, but even more activity could be seen early next year.

"Most investors or sellers are telling us that the election volatility next month is part of the reason for 'Why don't we just hold off until the first of next year?'" Dunn said. "We expect and anticipate that there's going to be a significant amount of deal flow in the market sometime after the new year."

UPDATE, OCT. 14, 4:45 P.M. ET: This story has been updated to add Newmark as the broker for the TruAmerica Multifamily and Pantzer Properties deals.