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CoStar Market Insights: Portland Multifamily Sales Activity Continues Slowing in 2017, But No Signs of Stopping in This Former Tertiary Market

October 30, 2017
The Portland metro multifamily sector has emerged as a major market for institutional investors. Once viewed as a tertiary market, Portland's strong economy has put it on the map.

Though 2017 is experiencing a bit of a slowdown, multifamily sales volume broke records in 2014-2016. In particular, the showing for the third quarter 2017 sales volume is weaker than that of the past few quarters, with a particularly stark falloff from the cycle peak in the fourth quarter of 2016.

The two highest volume trades of the third quarter 2017 are both in the suburbs: Jory Trail in Wilsonville, which sold for $75 million, and Latitude in Happy Valley, which sold for $58 million.

Both properties sold within the last three years at a substantially lower price point. This is particularly notable in the case of Jory Trail, which has undergone no significant upgrades in the intervening period. After Portland rent growth rose to a crescendo in 2015, the highest across all major American metros, year-over-year growth has since been in a decline.

At $75 million with a 4.9% CAP rate, the July 2017 sale of Jory Trail is the largest multifamily deal of 17Q3. The institutional transaction is also the largest Portland multifamily deal thus far in 2017.

The 324-unit Wilsonville property, which delivered in 2012, comprises 14 buildings over 35.5 acres. The asset was reportedly 95 percent occupied when sold, and benefits from a submarket with tight vacancies. The seller is based in Salt Lake City, while the buyer, JLL Income Property Trust, is based in Chicago. This purchase is the REIT's first foray into Pacific Northwest multifamily investment. Jory Trail was last traded in January 2015 for $59 million, at a 6% cap rate. Asking rent did not substantially increase over the intervening period, no new units were added, and the vacancy was very comparable at the time of each sale. Nevertheless, the value of this property increased by 27% in 2.5 years.

On the surface, Latitude has a similar trajectory to Jory Trail. Selling for $58 million at a 4.7% CAP rate in September 2017, the property previously sold for $13.5 million in June 2014 (no cap rate is available, but occupancy was 98 percent). However, in the 2014 sale, Latitude numbered only 72 units. The earlier transaction included excess land with underground improvements, and an additional 160 units have since been constructed and were included in the most recent deal. The 4-Star property consisted of 232 units over 33 buildings and was 93 percent occupied at the time of sale. The sale traded between two California-based institutional investors.

CoStar Market Insights is a new feature providing a snapshot of recent real estate trends. The CoStar Market Analytics team monitors commercial and multifamily real estate across 206 metro areas, with a granular understanding of the projects, players and economic trends that move these markets. Learn how CoStar Market Analytics can add to your market knowledge, helping to minimize risk and maximize returns.
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