The gap between class A and class B/C rents in multifamily properties has reached the lowest level in 15 years, representing a value opportunity for small balance investors.
According to data from Reis, the average asking rent for class B/C apartments represented 70.4% of the class A average during Q2 2015. This was the smallest difference on a percentage basis since the same 70.4% rate was measured for the same period during 2000. The largest difference was in 2009, the end of the recession, at 73.4%. Additionally, the net difference between property classes reached a record high of $411/unit during Q2 2015.
Reis data also showed that class A rents have recently grown at a faster pace than class B/C rents. The average asking rent for class A apartments was up 4.2% during Q2 2015 compared to the same time one year ago, while the class B/C average increased 2.5%. Overall, Reis forecasts 2015 year-end rent growth for multifamily properties to finish at 3.8%.
Rent growth in class A properties has been driven by new construction, with Reis reporting nearly 80,000 new units completed so far this year. However, no new class B/C properties have been added to the market so far this year, which could lead to constrained supply in the longer term.
All market data from Reis, Inc.
This report was produced for Arbor Commercial Mortgage, Inc.
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