Charlotte turned heads among national investors when the Catalyst uptown sold recently for a record-breaking $103.3 million, or $223,500 per apartment unit - the highest sale reported in the Carolinas.
The Queen City's apartment market has improved considerably in the past year, and investors have been eyeing the city's newest and highest-end properties.
In addition to showcasing Charlotte's strength as a rental market, the Catalyst's sale last month shows that investors' confidence in the local economy may be growing, real estate experts say.
"The investors have to feel comfortable with downtown as an employment center," said real estate analyst Frank Warren, principal of Warren & Associates. "The (banking) jobs are still here, and the office vacancy rate did not get as bad as some thought it might be."
C and J Catalyst, a limited liability company, bought the 27-story, 462-unit property on South Church Street. The company is managed by Massachusetts-based investor John Joyce. This is Joyce's first purchase in Charlotte, say people familiar with the investor.
Blake Okland, principal with Apartment Realty Advisors, said Catalyst's sale shows people want to live in and near uptown. Okland was not involved in the transaction.
"If anything, I think it's an endorsement that we're more diverse than people thought," Okland said. "There is an urban demand in our city that is increasingly being recognized by the broader investment community.
"It's especially relevant coming off the banking crisis. I think a lot of folks left Charlotte for dead. ... To make that big of a bet, you've got to have a pretty heavy belief that Charlotte is fine and heading in the right direction."
More people are renting in the Charlotte market, and many are choosing higher-end apartments.
Between February 2009 and February 2010, local apartment owners rented more than 7,000 units, the highest ever recorded by Real Data, which studies the apartment market.
Real Data President Charles Dalton said he would expect the Catalyst's new owner to consider turning the rental building back to for-sale condos. Real Data confirmed the purchase price was the highest recorded for the Carolinas.
Originally built as a for-sale condo building, Catalyst turned half the condos to rentals in February 2009 and later converted the remaining units to rentals as the housing market weakened. The lenders took ownership in fall 2009. The building has leased well and is nearly full.
The owner paid less than it would cost to build a new rental high-rise. Experts say such a project generally could cost between $250,000 a unit and $300,000 a unit. High-rises cost more than mid-rises because they use more concrete and steel.
Dalton said the new owner also could benefit from holding onto the apartments.
Apartment complexes have become a darling of investors post-recession - seen as a relatively safe investment as more people are starting to rent instead of buy real estate. Investors also are lending money to investors buying multifamily properties.
Charlotte-area apartment sales more than tripled last year to $207 million, up from $48 million the previous year, according to research firm Real Capital Analytics.
"The apartment market is entering a cycle where everything is in their favor: development is minimal, demand for rentals versus for-sale is growing, and employment is improving," Dalton said in an email. "It is also good for Charlotte. As other investors see this kind of transaction in Charlotte, it will make them want to look at Charlotte as a potential investment area."
Uptown apartment vacancy rates fell sharply during the past six months, dropping to 5.9 percent from 15.6 percent.
While that's good news for building owners, renters might see an unwelcome change.
Warren said falling vacancy rates means uptown rents are likely to rise.
Kerry Singe: firstname.lastname@example.org; 704-358-5085
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