To say that 2020 was a challenging year to transact commercial real estate is a massive understatement.  Yet, in a time when it was impossible to even shake hands, apartment deals still got done.

In the Puget Sound region, 227 apartment transactions closed in 2020 – a 35% reduction from the banner sales year of 2019, yet an impressive sales figure, nonetheless.

Our first COVID-era apartment listing launched March 16, 2020.  It didn’t take us long to learn that our education on how best to navigate apartment sales during COVID-19 needed to start immediately.

By year’s end, we structured 25 transactions – from raw development land to a 215-unit apartment complex.  The smallest sale just under $1M, the largest $45M – and nearly every dollar figure in-between.

Through these transactions we learned the following lessons:

  • Lesson 1: Marketing – Bring-to-Market or Sell Off-Market
  • Lesson 2: Pricing – Cap rates versus NOI
  • Lesson 3: Deal Size – Small versus Big
  • Lesson 4: Seattle versus Eastside versus Suburbs
  • Lesson 5: Land Sales – Raw Land versus Permitted, Entitled Land

Lesson 1: Marketing – Bring-to-Market or Sell Off-Market

During the go-go era spanning 2014 – 2019 it was hard to make an argument against broadly marketing a property.  Values continued to ascend and, more times than not, creating a broad marketplace generated the greatest buyer interest and results.

There is no playbook for marketing apartment buildings during a global health crisis.  During 2020, nearly 75% of the transactions we structured were accomplished without broadly marketing the property.  We utilized a variety of strategies – from very discrete matchmaking to creating competition among small buyer pools – yet one strategy we used least was the broad marketing campaign.

Which strategy worked best?

Each sale highly depended on the circumstances, yet what rang true was that achieving the best outcome for our client required a new level of creativity and nimbleness beyond the conventional marketing process.  What we learned worked and is still working!

Lesson 2: Pricing – Cap rates versus NOI

When it comes to an apartment sale, it becomes nearly instinct to ask, “what was the cap rate?

It’s both a fair and appropriate question to ask.  Capitalization rates serve as measures of risk adjusted return, unlevered return on capital, and a proxy for investor appetite.

However, after analyzing nearly 230 apartment sales in 2020, it was clear that 2020 cap rates on average neither expanded nor compressed.

How could this be?

Two factors largely impacted stable cap rates in 2020.

First, cheap money.  The 10-year treasury spent nearly the full year as sub-1% levels.  Such cheap money made financing accretive to even sub-4% cap transactions.

Secondarily, NOI was the driving differentiator in sales pricing in 2020.  In some cases, 2020 NOI was very comparable to that of 2019 – and strong, stable sales pricing resulted.  In others, NOI declined greater than 20% year-over-year, and even at pre-COVID-19 cap rates, pricing was steeply discounted.

What about those 3.5% cap deals we heard about?

Yes, for highly sought after, well-located apartment buildings, many buyers paid somewhat sharply compressed cap rates based on in-place operations, betting that stabilization will reward them with slightly above “market” returns.  And in other cases, great deals were to be had – evidenced by higher than market cap rates.

In the current environment, NOI remains king and the ultimate arbiter of price.  With the promise of low yielding treasuries for the foreseeable future – and piles of capital looking for a home – expect the trend of low, or at least stable, cap rates to continue into 2021.

Lesson 3: Deal Size – Small versus Big

If 2019 was the year of the “big” apartment transaction, 2020 was the year of the small one.  In 2019 the average transaction size was over $20M.  In 2020 that figure was more than halved to approximately $10M.


Two largely diverging pools of capital drove sales in each year.  In 2019 owners of larger assets raced the clock to avoid a state excise/transfer tax that was set to double on them as the clock struck midnight on December 31, 2019.  Accordingly, sales skewed towards larger transactions, disproportionately impacted by a graduated scale of excise tax.

We all planned for less sales activity in 2020, yet none of us planned for steeply declining economic fundamentals in the following year.  As a result, sales in 2020 predominantly involved private owners selling for factors beyond just market timing.

Several large, marquee apartment buildings sold in 2020, yet the great majority of transactions involved private owners and private buyers.

As we venture into 2021, we expect this trend to abate, but not reverse.  There is a lot of “dry powder” in the form of investors hungry to deploy capital that in many cases has been sidelined for 10+ months.  As we gain more certainty around national politics, vaccines, and GDP growth, we’ll steadily experience an increase in the size of the average apartment transaction.

Lesson 4: Seattle versus Eastside versus Suburbs

For the great majority of the 128-month economic expansion – spanning 2010 to early 2020 – Seattle was the belle of the Pacific Northwest ball.  The increase in appetite for tech employers to locate on the Eastside was far from quiet, yet certainly not yet a raucous roar.

A fire that was first ignited by Seattle’s anti-business politics was then fueled by a gust of wind in the form of social unrest, the desire/need for social distancing, and a work-from-home (WFH) mandate that made less uninhabited urban centers simply less desirable.

The net benefactors include all of the Eastside (e.g., Bellevue, Redmond, Kirkland, Bothell, Issaquah), and also suburban markets around Puget Sound.  Apartment investors armed with both a WFM thesis and the growing tech footprint east of Lake Washington directed their investment dollars to the Eastside and fueled an impressive amount of sales, exceeding those inked even in 2019.

Although apartment sales volume in suburban markets didn’t exceed those in 2020, average sales values, based on price-per-square-foot basis, increased year-over-year (from 2019 to 2020) in South King, Snohomish, and Pierce County.

Lesson 5: Land Sales – Raw Land versus Permitted, Entitled Land

The great rush for developers to get a shovel in the ground to develop new apartments started to subside as early as mid-2018.  But once COVID-19 hit, it was nearly a full stop for developers seeking new development opportunities in the form of fully entitled, shovel ready development sites.

During 2020 we worked on the sale of more than 20 apartment development sites, with 75% of those pursuits turning into actual transactions.  The clear winner – measured by interest from buyers – were raw sites, needing 18 – 24 months to obtain entitlements to break-ground.

As the year progressed, more developer-purchasers came to the table looking for near-term development opportunities.  We see this trend continuing with clarity into the future 2021 is bringing.

We also see the shift in interest towards longer-term development opportunities as a tremendous market opportunity for developers looking to deliver new apartment buildings shorter-term, namely in 2023-2024.

They say that cycles are long, but memories are short.  And accordingly, many already forgot how financially successful bold apartment developers were in 2010-2011 purchasing entitled development sites, only to time the market perfectly to deliver into the next market cycle.

Prescience is heavily rewarded in the development game!

Planning for Your 2021

Whether you own an apartment building or development land and want/need to sell, or you are looking to get into the Seattle/Puget Sound market–there is no time to waste.

For those of you waiting for the calendar to tick into 2021, here we are!

Waiting on the new president?  Check!

Hoping for a vaccine? Its arrived!

If you are waiting to get hit over the head with clear certainty on a broad economic recovery, you’ll be left with the scraps.


We can help with a Free Valuation of Your Apartment Building or answering questions about what/where to buy, and lending for both new acquisitions and refinances (contact Alex Mundy).

Working with a capable, experienced, and active team of apartment sales and lending experts is always important–and such sage guidance was never more necessary than it is today.

Give us a call to Turn Our Expertise into Your Profit!