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Despite high prices for apartment properties, REITs are on a buying binge. They are finding value in mergers that offer them efficiencies that put a strong hold on their markets. They are also looking at market and regions where property prices aren’t so high compared to the income from the properties.

“Yield and upside have multifamily REITs moving towards the Sunbelt and the Heartland,” says Brady Titcomb, research director, for U.S. multifamily for JLL.

REITs bought $1.5 billion in apartment properties in the first three months of this year. That’s a significant volume for the first quarter, especially considering that the first gigantic apartment deal for this year, the merger of Essex Property Trust and BRE Properties valued at $4.3 billion, didn’t close until April 1. The second quarter is expected to be very busy as REITs continue to be net buyers.

REITs bought apartment properties in the Sunbelt and the South, including more than $100 million in apartment properties in Dallas, Atlanta and Los Angeles. Other top acquisition markets for REITs include St. Louis, Oklahoma City, Denver, Charlotte and Memphis.

Meanwhile, multifamily REITs sold more than $100 million in properties in the Washington, D.C., metro area and San Diego. Additional top markets for sales for multifamily REITs include the New York metro area, Portland, Ore., and South Florida, according to JLL.

The sales activity comes after a very busy 2013, when REITs bought $25 billion in apartment properties. Of that volume, more than $19 billion came from mergers and acquisitions, as REITs bought and merged with one another. Giant deals include the joint venture between AvalonBay and Equity Residential to buy the Archstone portfolio and the purchase of Colonial Properties Trust by Mid-America Apartment Properties.

These mergers all follow a similar pattern. “They are concentrating market share,” says Titcomb. “These mergers are creating the largest apartment operators in the country.”

The combined companies often have a very significant share of the apartments in their region. Following its merger with BRE, Essex is now the largest apartment operator in its Western markets.

Why are REITs buying more apartment properties at what may be the top of the market? It helps that apartment fundamentals are strong and continue to get stronger. New demand for apartments and new job formation are keeping pace, so far, with the construction of new apartments in most markets.

Capitalization rates, which express the sales price of a property as a percentage of its income, are near historic lows. The average cap rate for apartment properties was 5.9 percent as of the first quarter, according to JLL. That’s 10 to 20 point basis points lower than the year before. “We’re still seeing a slight decline,” says Titcomb.

Not all markets are created equal, however. In suburban markets less favored by investors, average cap rates rose 15 to 20 basis points as prices moderated over the last year.

Meanwhile, in core real estate markets, cap rates showed no change over the past year, despite the sharp rise in long-term invest rates late spring. A broad range of investors still favor core markets for their strength right now and their long-term prospects for growth. But secondary markets are attracting many REITs with their higher cap rates.

This article was republished with permission from National Real Estate Investor.