Like its REIT peer Arlington, Virginia-based AvalonBay Communities, Equity Residential has designs on bulking up its apartment portfolio in the Sun Belt. And as more properties come online in the region in the next couple of years, the Chicago-based REIT should have plenty of opportunities to make acquisitions.
EQR got a head start in the third quarter with the acquisition of the Richmond Row apartment property in Suwanee, Georgia, for $98 million, according to its third-quarter earnings report. The 344-unit asset has access to Interstate 95 and the median household income in the area and among its residents is around $100,000. Its monthly rents range from $1,355 to $2,990, according to Apartments.com.
“This asset is brand new and is still in lease-up, and we expect it will stabilize at a 5.4%, year two acquisition cap rate,” EQR CEO Mark Parrell said on the REIT’s third-quarter earnings call. “The median home price in the desirable area where the property sits is $600,000, which assuming a normal down payment in current interest rates, equates to an all-in housing cost at 2.5 times our pro forma rents.”
In addition, EQR bought The Baxter, a 290-unit property built in 2019 in Decatur, Georgia, for approximately $81.7 million at an acquisition cap rate of 5.1%. The REIT assumed low-cost debt on the transaction. The four-story property has rents between $1,560 and $3,480, according to Apartments.com.
“This property is located in an upscale mixed-use development, though we acquired none of the retail, with a resident base having high-paying jobs at the large education and medical employers nearby,” Parrell said.
2023 slowdown
EQR has had what Parrell called a “modest” number of transactions in 2023, with about $350 million in acquisitions and dispositions. In Q3, the REIT sold a 30-year-old property in downtown Seattle at a 5.4% disposition yield as it looks to downscale in the urban centers of its West Coast markets.
On EQR’s conference call, Parrell remarked that the REIT was on an acquisition pause because pricing didn’t make sense.
“The deals you saw closed, they were priced … in the early second quarter,” Parrell said. “One of them went through a long loan assumption process and the other one had a lease-up and an elongated close process. So, we really aren’t buying anything right now.”
EQR is still underwriting deals, but they have to make sense relative to its cost of capital. “We're looking for a discount to current replacement costs,” Parrell said. “So it is right now at a pause because the market isn't offering us that opportunity.”
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