Based on confirmed sales in the CBRE Valuation & Advisory Services (VAS) database, average multi-family cap rates in Southern California continued to rise in 2009. The average cap rate in the Third Quarter of 2009 was 7.48% and sales transactions scheduled to close in the Fourth Quarter are at implied cap rates of 7.0 and higher (several are over 7.5 percent). These figures are well above the decade low of 5.2% in 2006, as well as the 2007 and 2008 figures, both of which were 5.3%. This quick reversal has undone the prior ten year decline in cap rates in 12-24 months. The following chart illustrates the average annual cap rate during the past ten years for institutional-grade assets, 100 units and larger, in the five-county market (Orange, Los Angeles, Riverside, San Bernardino, and San Diego counties).

It should be stressed the 2008 and 2009 average cap rate data is derived from a smaller number of transactions, which partially mitigates the statistical relevance. In fact, transaction volume is at a 10 year low in number of sales and dollar volume as sellers are unwilling to sell at depressed prices and buyers are cautious about purchasing in a declining market (with a distinct possibility of seeing their equity erode in a short period of time).

Most market participants believe cap rates will continue to increase in the short term. One piece of evidence cited is the large number of well-capitalized investors waiting for investment parameters and yields to improve before investing. These market conditions require a detailed analysis of each transaction in order to understand the impact property specific issues (assumable debt, occupancy patterns, contract income, etc.), micro market fundamentals, and the impact of the capital markets have on investment rates.

There is also a growing perception the market is impacted by perceived "agenda reporting" regarding capitalization rates in the general media and in marketing packages. In general, actual capitalization rates based on true income characteristics are above what buyers' indicate to the press. Marketing by the brokerage community and attempts to control listings is generally cited for the reporting differences. This lack of reliable information elevates buyers' perception of risk in the market, which negatively impacts sales.

The following chart summarizes the median price per unit and the year-over-year percentage change, total transaction volume, and number of sales, in Southern California apartment properties in the past ten years.

Year	Median $/unit	Yearly ∆	Total Transaction Volume	# of Properties Sold
1999	$74,608		$1.68 billion	94
2000	$89,845	20.4%	$2.70 billion	111
2001	$91,010	1.3%	$1.63 billion	83
2002	$115,392	26.7%	$3.00 billion	120
2003	$121,406	5.2%	$3.23 billion	102
2004	$154,735	27.4%	$2.90 billion	81
2005	$152,418	-1.5%	$2.71 billion	78
2006	$194,382	27.5%	$4.19 billion	85
2007	$185,162	-4.7%	$3.82 billion	90
2008	$180,063	-2.7%	$1.25 billion	32
2009, YTD 3Q	$148,639	-17.4%	$750 million	23
Properties with 100+ units

The CBRE Multi-Family Housing Valuation platform is unmatched in data, national capacity and tenured professionals. Their experience is required to properly analyze assets in a market characterized by limited sales volume and economic uncertainty.
Data From: CB Richard Ellis