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Here’s Where Large Multifamily and Hospitality Deals Are Pricing

Capitalization Rates for Major Transactions Climb

Capitalization Rates for Major Transactions Climb

The Skywater at Tempe Town Lake apartments in Tempe, Arizona were acquired by Weidner Property Management LLC in a major deal this year for $112 million, or $341,463 per unit. (CoStar)

CoStar Analytics

June 13, 2024 | 10:45 AM

To understand where commercial real estate is pricing this year, start by looking back to early 2021, when the Federal Reserve's interest rate hikes triggered a sharp decline in institutionally sized property deals. Pricing plummeted, directly tied to the rising rates, and the market's capital flow became more selective, favoring the multifamily and industrial property sectors more broadly and high-quality assets in office and hospitality more selectively.

Since January 2024, multifamily investment sales have led the charge in transactions over $75 million among deals with reported capitalization rates. This cohort's average trade was about $110 million, with a price per unit coming in at about $322,000. Typical cap rates straddled 5.25%, with those yields paired with an average occupancy rate of 93%.

Brookfield's acquisition of a 23-property portfolio from Starwood Capital made waves with a blended cap rate close to 4.85%. The deal, involving 7,300 units, single-handedly lowered the average cap rate for institutionally sized commercial real estate transactions. Excluding this humongous sale, the average cap rate among the remaining properties increased to 5.4%, and due to higher asset quality, the average price per unit also increased to $366,000.

Outside the Starwood Capital portfolio, most significant property trades fell within a cap rate range of 5.2% to 6.2%, with many clustering between 5.25% and 5.75%.

A prime example is the January 2024 sale of Skywater at Tempe Town Lake. KB Development sold this 328-unit project near Arizona State University to Weidner Apartment Homes for $112 million, or $341,463 per unit, at a 5.2% cap rate with 93% occupancy.

Robust Hospitality Pricing

The hospitality sector has also made some headline-grabbing deals so far this year. Among properties that sold for over $75 million with reported cap rates, the average transaction size was $367 million and garnered a 7.6% cap rate.

Host Hotels & Resorts' purchase of 1 Hotel and Embassy Suites in Nashville, Tennessee, exemplifies this trend. Host acquired the 18-story luxury hotel and the 30-story Embassy Suites by Hilton, totaling 721 rooms, for $530 million, or $735,090 per key, at a 7.4% cap rate. Starwood Capital, Crescent Real Estate, and High Street Real Estate Partners were the sellers.

In Phoenix, Blackstone sold the Arizona Biltmore Hotel to Henderson Park for $705 million, or just over $1 million per key. After its 2023 renovation, this Waldorf Astoria Resort fetched a 7.5% going-in yield.

Cap rates for top-tier multifamily properties have risen by about 200 basis points from their previous highs in late 2021. Deals that once saw yields between 3.25% and 3.5% now range from 5.25% to 5.75%. However, unique assets with compelling stories or prime locations can still achieve cap rates below 5%.

The top end of the hospitality sector has also seen cap rates climb about 200 basis points, going from the mid-5% range to the mid-7% band for select deals. The Arizona Biltmore's cap rate of 5.6% in 2018 was similar to the 2019 sale-leaseback of The Bellagio at a 5.75% cap rate or the 5.3% cap rate paid for the Hotel Amarano in Burbank, California, that same year.


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