Several recent big sales of apartment complexes in the Richmond region make it clear that, as the lyrics from the rock band Buffalo Springfield’s “For What It’s Worth” song indicate, “there’s something happening here, what it is ain’t exactly clear,”

The first was a Oct. 26 trade of the 192-unit Copper Mill Apartments in western Henrico County for $33 million. The 1987-era apartment complex was well-occupied at closing, and the new owners are experienced professional owners from California. They paid $171,875 per unit.

That price per unit compares favorably with another recent sale, the 280-unit James River at Stony Point apartments in South Richmond. The out-of-town buyer also is an experienced and professional owner, and the apartments were virtually brand-new. The $62 million purchase price amounts to $221,428 per unit.

While the price per unit on the two recent trades are nearly $50,000 different, a premium is expected for brand-new apartments compared to 30-year-old apartments.

Digging in a bit more and using data available from CoStar Group Inc., the commercial real estate data and analytics company, the picture is a little murkier.

Copper Mill was purchased for a little over $208 per rentable square foot ($33 million divided by 158,016 square feet).

Interestingly, the James River at Stony Point sold for $209 per rentable square foot ($62 million divided by 296,760 square feet).

Common sense would indicate the newer apartments should sell for quite a bit more per square foot, not only because the apartments are new but also because average rents are almost $400 a month per unit greater.

When you compare the average advertised rent per square foot at Copper Mill, however, to James River at Stony Point, they are almost the same. According to CoStar, Copper Mill averages $1.41 per square foot in rent while James River at Stony Point averages $1.46 per square foot in rent.

One metric that is helpful to look at is repeat sales, which shows price appreciation in markets. The best apples-to-apples price comparison is from a repeat sale of the very same asset across the years.

That’s not the best comparison for the Copper Mill apartments as the complex last sold in October 2008.

But we have something very close — the neighboring property of Copper Spring apartments.

The two complexes were built two years apart and share Copper Mill Trace that runs between West Broad Street and Mayland Drive. Another property that is almost identical is the nearby Hickory Creek Apartments off Tuckernuck Drive.

Here is the comparison. Copper Mill sold for $171,875 per unit and $208 per square foot last month. Copper Spring sold for $148,100 per unit and $175 per square foot when it changed hands in December 2017, while Hickory Creek sold for $97,100 per unit and $104 per square foot in June 2016.

On a per-square-foot basis, apartment prices have risen about 77 percent in the past 18 months. On a per-unit basis, prices have increased 100 percent.

An interesting side note is that interest rates have marched steadily upward during the same timeframe.

In June 2016, we had the lowest rates in 30 years with 10-year money pricing at 3.5 percent. Even at the end of last year, 10-year pricing was almost unbelievably low at 3.85 percent.

Overall rates are currently in the 4.25 percent to 4.5 percent range for 5- and 10-year lower leverage loans offered by life insurance companies, according to the John B. Levy National Mortgage Survey. Full leverage loans for multifamily housing are pricing higher and now are pushing 5 percent for 10 years.

So what’s happening here? Why are apartment prices surging at the same time interest rates are at a seven-year high?

Well, it is not exactly clear, but apartment owners in the Richmond area are certainly benefiting from strong rental growth, and national research firms are taking notice as well.

A recently released report by Apartmentlist.com ranked Richmond’s 2.6 percent year-over-year rental growth in October as 12th best in the country. That is behind such explosive markets as Orlando, Fla., Las Vegas and San Jose, Calif., but just ahead of Austin, Texas, and others like Raleigh and Charlotte, N.C.

A recent study from CoStar indicated that Richmond will need about 8,000 apartments units between now and 2023. Not an insignificant number of apartments just to keep up with demand.

While it will only be clear in hindsight, perhaps the market is gearing up for even greater rental growth.

John B. Levy & Co. partner and investment banker Andrew Little can be reached at alittle@jblevyco.com.

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