IRET has sold the Renaissance Heights apartments in Williston, North Dakota, in a portfolio sale.
North Dakota multifamily properties are starting to make a slow comeback. Buyers are showing up in the market, while rents and occupancies are up in what could be a long road back.
The state, once a hotbed of multifamily construction favored by securitized mortgage lenders, was hit hard when oil prices plunged in 2015 from about $125 a barrel to about $50. Now with oil prices back up to about $75 a barrel, real estate investors in the region are starting to feel some relief.
While there are signs this month that attest to the strengthening effect on commercial property, there is new data emerging showing how hard it has been hit.
First the good news. Investors Real Estate Trust, the Minneapolis-based publicly traded real estate investment trust known as IRET, sold its interest in a multifamily portfolio in Williston, North Dakota. Williston is in the Bakken oil field region of North Dakota, and the region’s primary economic driver is oil production and related industries.
IRET sold three complexes totaling 477 units and a vacant land parcel for a total price of $42.3 million or about $88,680 per unit.
That is a major improvement from a year ago, but still nowhere near the market’s peak in 2014. Prior to the oil price collapse, units in North Dakota were selling for about $160,000, according to CoStar data. They bottomed last year at about $47,000.
IRET owned the majority interest in the Renaissance Heights and Williston Gardens properties, which consisted of 433 units and a vacant land parcel, and it was the sole owner of the Dakota Commons property consisting of 44 units. IRET managed all 477 units before the sale.
In its annual report filed last month, IRET reported it had written down the value of the portfolio in 2016 by more than $54 million because of deterioration of the energy-impacted market, which resulted in poor leasing activity and declining rental rates.
Following this transaction, IRET has no remaining units in Williston.
“The sale of the Williston Portfolio further demonstrates our commitment to constructing a portfolio of multifamily properties that will help our company grow over the long-term,” Mark O. Decker Jr., president and chief executive, said in announcing the deal. “We continue to seek acquisitions in our target markets of Denver and Minneapolis, and to review our existing portfolio for opportunities like Williston where we can exit non-strategic markets on a non-dilutive basis.”
The buyer, Kirkland, Washington-based Weidner Apartment Homes, owns more than 52,000 units and has multifamily investments in other energy-driven markets throughout the U.S. and Canada.
In another sign the market is rebounding from a bottom, Apollo Commercial Real Estate Finance holds a loan on 36 single-family homes, a garden style 330-unit multifamily project, and about 200 finished and unfinished lots in Williston. The publicly held lender this month reported improving fundamentals in the market.
On the multifamily property, rents got as low in that market as about 80 cents a foot. Rents are now north of $1 a foot with no concessions, the company said. Occupancy percentages are solidly in the 90s at the property and in the market.
“Certainly, the story is better in Williston these days, as everybody can surmise given where oil prices are these days,” Jai Agarwal, chief financial officer of Apollo Commercial Real Estate Finance said.
While the asset is still “under earning,” Agarwal said the market generally has a better tone to it overall.
“The more we can stay at those levels, I think the more optimistic we are about some overall exit at some point in the future, but I don’t want to get ahead of ourselves,” he said. “I would say after battling this asset for the last couple of years, we, like everyone in Williston, are probably hoping that oil stays at these levels. It creates a nice level of economic activity.”
Kroll Bond Rating Agency reported numbers this week showing why the industry is not trying to look too far ahead.
Appraisal reduction amounts have accelerated this year on loans held in commercial mortgage backed securities, according to KBRA. Some market participants consider appraisal reduction amounts to be a proxy for expected loan losses.
North Dakota has the largest amount of appraisal reductions outstanding — $105.3 million. The largest reduction percentage belongs to Williston Meadows Apartments at 86 percent. The property, built in 2012, is a 24-unit low-rise multifamily asset located in Williston. The loan was foreclosed on in May 2018. CoStar Group indicated that asking rents averaged $963 per unit, which is down from $2,640 when the loan was issued in 2014.
In North Dakota, nine of the 13 loans with appraisal reductions are collateralized by multifamily properties. Employment losses led to less demand for apartments in North Dakota, KBRA reported.