The transaction market continues its sluggish pace as 2008 winds down, but some buying opportunities are emerging.

Two large multifamily transactions were announced in November, and the types of transactions illustrate the types of opportunities available in the market—namely, distressed situations.

Guardian Management, LLC, recently acquired more than 4,000 units from Atherton-Newport Investment, which filed for bankruptcy in January. Many of the apartment communities were located in markets hardest hit by oversupply, like Phoenix, Las Vegas, and Miami. Terms of the deal were not disclosed.

In late November, Property Holdings acquired a 17-community portfolio from Aimco, valued at more than $285 million. Many of the properties are located in softening markets like Cincinnati and Columbus, Ohio; Charleston, S.C.; and Atlanta. Like all apartment real estate investment trusts, Aimco has seen a sharp decrease in stock price over the last three months, from $36 a share in early October to just $11 on Dec. 9.

And more properties go on the block every day. In early December, Babcock & Brown said it would exit the multifamily business in an effort to pay off its debt and reduce operating costs. The company is putting its multifamily portfolio, consisting of 28,500 units throughout 10 states, on the block.

A good measure of the risk premium for buying apartments is in the difference between capitalization rates and the yield on the 10-year Treasury. A cap rate, which is a property’s net operating income divided by its purchase price, is a measure of return on investment. At the height of the condo boom in September 2006, the difference between cap rates and the 10-year Treasury was about 80 basis points. In November 2008, that spread had widened to about 280 basis points.

“People are pricing in greater risk,” says Robert White, president of Real Capital Analytics. White expects that spread to increase heading into 2009 as cap rates continue to rise. 

Still, the expectation gap between buyers and sellers was starting to close in the fourth quarter, as sellers grew more realistic. “There are still way more sellers than buyers, but we’ve seen asking cap rates spike at least 20 basis points since September, so at least they’ve adjusted their expectation a little bit,” says White. “There are a lot of sellers out there that were reluctant to take too much of a discount and turned their noses up at some deals earlier this year that wish they could have those deals back.”