Equity Residential paid $284.2 million for nine properties totaling 2,232 units in the first quarter, which represents a capitalization rate of 5.6%. Meanwhile, the company's sales totaled 2,674 units in 10 properties for $425.3 million, or a 4.4% cap rate.
However, 338 condominiums were sold during the first quarter for $92 million, booking a profit of nearly $14 million. Equity Residential is aiming to sell 1,800 units this year. Executive vice president David J. Neithercut, who succeeds president and chief executive officer Bruce W. Duncan next year, remains optimistic the company will hit its condominium sales goal this year.
"This business offers us an opportunity to sell our assets and significant premium prices," Neithercut says during the company's earnings conference call. "The profits we've been making have been terrific."
Although analysts question whether the sales effort may fizzle in some markets, Neithercut argues the company is poised to step in and resume managing properties as rental. However, he notes Equity Residential is selling units in the $150,000 to $200,000 range. Closer to home, 30 sales at Four Lakes in west suburban Lisle averaged $145,000 in the first quarter.
"We like this niche in the market," Neithercut says. "We've got well-located, fundamentally sound assets that we've done renovations to."
Neithercut estimates the company's profit margin at $30,000 per unit, which gives Equity Residential greater flexibility to weather condominium market downturns, or sell out quicker than expected. "If things go awry, we can have a fire sale and minimize our problems," he adds.
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