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BOCA RATON, FL-Gables Residential, a locally based developer, builder, owner and manager of luxury multifamily communities, has acquired a company and reached a separate agreement with another entity--both of which will enable the company to expand into the remaining two markets where it wants to have a presence.
Through the two transactions, Gables will enter the San Diego and Inland Empire (Riverside/San Bernardino) markets, as well as expand in Washington, DC. "This is consistent with a strategy (Gables) laid down five years ago," says David Fitch, chief investment officer of Gables Residential. The strategy was to be operating in eight markets that are all in the top 12 highest-job-growth markets, as identified by several economists. In addition, the eight are complementary markets that have low volatility, he says.
In one deal, Gables has acquired Income Growth Property Management Inc., a property management company based in San Diego, CA, that has 2,141 units under management. In the other deal, Gables has come to an agreement with the New York State Teachers' Retirement System, which JPMorgan Fleming Asset Management advises, to acquire and develop assets in all three markets. As part of the agreement, both Gables and the New York State Teachers' Retirement System are swapping a 50% interest in certain assets. Gables is contributing two South Florida assets and one Washington, DC, asset, while the retirement system is contributing two assets in Temecula, CA. "They're merely investments that the venture made," Fitch says.
By investing in the Southern California assets, Gables adds 532 apartments to the existing management base of properties that IGPM manages, which results in a combined 2,673 units combined.
The joint venture's closing and related property swapping is subject to routine closing conditions, including getting consents from lenders, which Gables anticipates having by the middle of the month. The deals will help Gables get familiar with the additional two markets, Fitch says. Gables already has a presence in Washington, DC, as well as South Florida, Atlanta, Austin,TX, Houston and Dallas.Gables CEO Chris Wheeler says in a statement: "Portfolio allocation modeling shows that the addition of assets in San Diego and the Inland Empire should allow our revenue growth to exceed the national average while also reducing our portfolio volatility below the national average. The combination of these two components supports our strategy aimed at producing total return for our shareholders that exceeds the Nareit apartment index over time."
The joint venture provides for up to $800 million in real estate investment mainly in the San Diego, Inland Empire and Washington, DC markets. Gables is granting the retirement system a three-year right-of-first-opportunity for investment opportunities in San Diego and Washington, DC, that are more than $50 million as well as those that are more than $35 million in the Inland Empire. The venture anticipates about 75% of its investment being in acquisitions and the rest being in development.
The venture is to be capitalized with about 55% leverage, and the equity component will be funded 50% by Gables and 50% by the retirement system. Gables will act as property manager for the assets.
Gables Residential manages 47,146 apartment homes in 182 communities, including 85 communities that it owns.
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