(To read more on the multifamily market, click here.)
ALEXANDRIA,VA-Home Properties Inc. has acquired a 1,387-unit, garden-style multifamily complex here for $144.6 million, or $104,300 per unit. In December 2004, the Rochester, NY-based Home Properties negotiated a lease with an option to buy from an undisclosed seller. Since then it has been managing Mount Vernon Square, the 127 three- and four-story building apartment community.
A spokeswoman tells GlobeSt.com that since the asset was under its management, Home Properties has raised occupancy to 93.5% from 89.8% and raised rents by 15%. Rents now average $1,082 per month.
As part of the acquisition, Home Properties assumed a $90.7-million fixed mortgage of 5.2%, which will mature on Jan 1, 2013. It also paid $53.9 million in cash from proceeds of its sale of its Upstate New York portfolio in December 2006, as reported by GlobeSt.com.
The company spokeswoman says now that it owns Mount Vernon Square it plans to catch up on deferred maintenance and other renovations, spending approximately $4.8 million over the next few years. Capital improvements include enhancing curb appeal, replacing signage, windows, sliders, roofs, HVAC and other systems and upgrading kitchens and baths. Plans also call for remodeling the clubhouse.
According to the company's release, it anticipates a 7.4% weighted average first year capitalization rate on the acquisition after allocating 3% of its rental revenues for management and overhead expenses and before normalized capital expenditures of approximately $525 per unit annually.
"We are very pleased with the 7.4% cap rate on this transaction given that the range of cap rates in this market today is approximately 5.5% to 6%," says David Gardner, Home Properties' executive vice president and CFO, in a statement. "At the 5.8% midpoint of this cap rate range, Mount Vernon Square's value is closer to $185 million, $40 million more than the actual purchase price."
Mount Vernon Square was built in phases starting in 1968 and consists of 619 one-bedroom, 551 two-bedroom and 217 three-bedroom apartments that average 843 sf.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
