GREENWICH, CONN. — Starwood Capital Group has agreed to purchase 72 multifamily properties totaling 23,262 units from Equity Residential (NYSE: EQR) for $5.3 billion. The purchase price equates to approximately $230,634 per unit, with a capitalization rate of 5.5 percent.
The deal represents the largest non-hotel acquisition in the history of Greenwich, Conn.-based Starwood Capital Group, which has extensive experience investing in the multifamily sector. Following the final closing of the transaction, expected to occur in the first quarter of 2016, Starwood Capital Group will control more than 88,000 units, making the firm one of the largest apartment owners in the United States.
The portfolio contains properties in South Florida, Denver, Washington, D.C., Seattle and the Inland Empire area of Southern California (see below for a detailed breakdown of the properties sold).
Including this transaction, Starwood has acquired or is under contract to acquire approximately 67,800 multifamily units over the past 12 months.
“Our intimate market knowledge and access to capital allowed us to execute on this transaction quickly and efficiently,” says Christopher Graham, senior managing director and head of real estate acquisitions for the Americas at Starwood Capital Group.
“Our existing multifamily portfolio provides us with tremendous insights into market fundamentals and developing trends, allowing us to recognize and capitalize upon the dynamic growth across these markets,” continues Graham. “The two largest markets in this new portfolio — South Florida and Denver — are both seeing very impressive and sustainable indications of growth, driven by compelling demographics, affordability and fundamentals.”
The markets represented in the portfolio have demonstrated strong market rent growth of 5.4 percent annually over the last five years, well above the national average, according to Starwood Capital Group.
David Neithercut, president and CEO of Chicago-based Equity Residential, says this was an extremely opportune time for the real estate investment trust to monetize its investment in this portfolio of assets.
“In doing so, not only have we demonstrated the enormous value created for our shareholders through the realization of an unlevered internal rate of return of 11.1 percent, but we have also narrowed our focus, which will now be entirely directed toward our core, high-density urban markets that will fulfill our strategic vision and drive EQR’s performance for many years to come,” explains Neithercut.
Equity Residential plans to sell an additional 26 assets that contain 4,728 apartment units next year. About 3,364 of those units are based in Connecticut and in non-core submarkets in Massachusetts. The company expects to sell these assets in individual and small portfolio sales for an aggregate value of about $700 million.
When complete, the two rounds of sales will mark Equity Residential’s exit from the South Florida, Denver and New England submarkets. The giant apartment REIT intends to use the majority of the proceeds from these sales to pay a special dividend to its shareholders. The dividend will likely be between $9 and $11 per share. It will be paid during the second quarter of 2016.
Neal, Gerber & Eisenberg LLP served as Equity Residential’s legal advisor on the Starwood transaction.
Equity Residential is an S&P 500 company focused on the acquisition, development and management of high-quality apartment properties in top U.S. growth markets. The company owns or has investments in 392 properties with 109,347 apartment units.
The stock price of Equity Residential closed Friday, Oct. 23, at $79.47 per share, up 20 percent from $66.12 per share one year ago. As of late morning Monday, the stock was trading at $80.44 per share.
Here’s a breakdown of the assets Equity Residential is selling in five separate markets:
- 33 properties, 10,742 units in South Florida
- 18 properties, 6,635 units in Denver
- 10 properties, 3,020 units in Washington, D.C.
- 8 properties, 1,721 units in Seattle
- 3 properties, 1,144 units in the Inland Empire of California
— Nellie Day