Hot to Trot via Apartment Finance Today

New York; Boston; Washington, D.C.; the Bay Area; Southern California; and Seattle.

They’re called the “sexy six,” and they roused the multifamily industry out of the recession. Investor interest in those core markets has been intense since mid-2009, leading to rabid bidding wars and ever-higher price tags.

But in some ways, the sexy six may have run their collective course. Capitalization rates have gone so low in those areas—declining to and, in some cases, going below their pre-recession lows—that a growing number of investors are searching for yield in less celebrated cities.

“If all the money flows into the sexy six, either not everyone will get fed, or people will get fed but won’t like the meal,” says Mike Kavanau, senior managing director in the Chicago office of Holliday Fenoglio Fowler. “At the end of last year, we saw cap rates back up a little in the core markets—you can only go so low on cap rates before people start expanding their horizons and look at secondary markets.”

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