(Bloomberg News) Orchard Pointe, a 17-year-old, vinyl-sided apartment complex in Vancouver, Wash., wouldn't have drawn a second look from Invesco Real Estate in early 2010, when most multifamily-property investors wanted newer trophy buildings in coastal markets such as New York and San Francisco.

"We wouldn't have even considered it," Greg Kraus, head of acquisitions at the Dallas-based real estate arm of asset manager Invesco Ltd., says.

By December, the firm had purchased the 388-unit Orchard Pointe, located about 15 miles from downtown Portland, Ore., on behalf of a client for more than $31 million. It plans to raise rents after spending about $4 million to renovate the garden apartments, including removing the vinyl siding, Kraus says.

As U.S. demand for rental housing surges, investors are venturing beyond class A properties, or newer, well-leased buildings in centrally located neighborhoods of big cities. Orchard Pointe was the first class B property-older, with higher vacancy rates or requiring improvements-that Invesco had bought in three years, before credit markets seized and commercial property values tumbled.

"It really reflected our belief that fundamentals are improving," Kraus says.

Apartment-building sales climbed 96% to $33.7 billion in 2010 from a year earlier, according to Real Capital Analytics Inc., a commercial-property research firm in New York.

'Value Add' Apartments
"Value-add" apartments-class B properties, distressed acquisitions, real estate that requires renovation and buildings where cash flow can be increased-accounted for 33% of sales in the fourth quarter, compared with 25% a year earlier, says Sam Chandan, Real Capital's chief economist. Such deals made up 61% of apartment transactions in the fourth quarter of 2005.

The U.S. homeownership rate is at a ten-year low, in part because the foreclosure crisis is forcing former owners to rent and discouraging would-be buyers. Foreclosure filings increased in almost three-quarters of U.S. cities last year, and the number of homes receiving a filing is likely to jump 20% this year, according to data provider RealtyTrac Inc.

Apartment rents climbed 4.3% in the last three months of 2010, the most since the third quarter of 2006, according to research firm Axiometrics Inc. The Dallas-based company projects a 6% increase in U.S. rental revenue in 2011.

"Those improving fundamentals are driving the willingness of investors to explore value-add opportunities as opposed to paying premium prices for core properties," Chandan says. "That is a feature of the multifamily market that we do not see to the same degree in other sectors."