SEATTLE-Real Estate Investment Trusts have been big players in the Puget Sound multifamily market in recent years and a recent three-property purchase by AvalonBay again serve as a reminder. The Alexandria, VA-based REIT paid $129.3 million for a total of 995 units in Issaquah, Lynwood and Everett as part of a nine-property presale agreement with Trammell Crow Residential.
AvalonBay acquired the 333-unit Wynhaven in Issaquah, the 424-unit Brandemoor in Lynnwood and the 238-unit WildWood in South Everett. The Brandemoor and WildWood are north of urban core and command about $1 per square foot for rent while the Wynhaven (333 units) is on Eastside where analysts say rents could be 20 percent more expensive.
“You see this happening sometimes but you won't see a lot of it down the road,” says Greg Laycock, senior director of Cushman & Wakefield's multifamily investment division. “The incentives for REITS to make these kinds of purchases are not as attractive as they used to be.”
AvalonBay is in the business of developing, redeveloping, acquiring and managing luxury apartment communities in high “barrier-to-entry” markets of the United States. The REIT currently owns or holds an ownership interest in 137 apartment communities containing 41,402 apartment homes in 12 states and the District of Columbia. Twelve of the communities are under construction and four are under reconstruction.
The Puget Sound is definitely become a higher barrier-to-entry market everyday. Not only are rents moving up, but the costs to build new units – or buy existing single-family homes – also have skyrocketed, despite a glut of luxury homes on the market.According to Frank Bosel, multifamily specialist in the Seattle office of CB Richard Ellis, the challenge in developing is finding close-in sites that are zoned for larger buildings.
“When you go further out, the rents can't support the costs of building the project,” Bosel said. “But that's where most of the developing is taking place. The costs of availability of land near the city are a huge challenge.”
REITs have been active in the Puget Sound area multifamily picture since the early 1990s when Security Capital was the first big player, Bosel said. “When Security came it, they tended to offer a little bit more than everybody else,” Bosel noted. “Now, of course, Equity Residential is the biggest apartment owner in the area.”
The practice of buying complete portfolios – like the nine-property Trammell Crow deal – is rarely seen. “AvalonBay took over when occupancies reached a certain level,” Laycock said. “That's fairly common in presale negotiations. You are finding more REITS deploying into developmental deals.”
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