AIMCO Gives Up Riverside to Fund Purchase of Indigo

Riverside Apartments

ALEXANDRIA, VA—Washington REIT closed on its purchase of Riverside Apartments, a 1,222-unit complex located in the Old Town Corridor that it announced last month it was purchasing for $244 million . At the same time, it reported that it was selling six of its suburban Maryland office properties for $240 million. Like many REITs, Washington REIT is, or least appears that is it, match funding its investment activities with dispositions. It is not surprising that the seller of Riverside, which also has onsite density to develop an additional 550 units, let go of the asset to fund its own purchase. That would be the Denver-based Apartment Investment and Management Co., or AIMCO.  The REIT’s Washington DC area’s holdings in general have been performing well delivering 2.5% in revenue growth for the first quarter, according to its earnings. In addition most of its local holdings are in Alexandria, VA, which outperformed Maryland for the first quarter and for the fourth quarter of last year. The latter achievement, according to comments made by Keith Kimmel, head of property operations during the earnings call “was the first time we had seen that.” The Riverside in particular has unrealized potential that could add to revenue streams. As Washington REIT CEO Paul T. McDermott said in a prepared statement, the property “provides us with a compelling opportunity to renovate approximately 850 units to generate rental growth, and the potential opportunity to develop additional units onsite, thereby offering multiple price points in a submarket with a strong population of renters.” So why its sale then? The answer, simply, is that AIMCO needs the proceeds to complete the funding of its acquisition of the Indigo, a 463-unit, mid-rise apartment building in Redwood City, CA, according to CIO John Bezzant, speaking on the same earnings call as Kimmel. The Denver-based The Pauls Corp., began building it in 2014. CBRE Capital Markets arranged a $121 million, non-recourse, floating-rate loan with a four-year term through Wells Fargo to fund the construction that year. Said Bezzant during the call (per a Fair Disclosure transcript):

At Indigo in Redwood City, California, construction continues on plan. We’re under contract to purchase this property upon construction completion and anticipate closing the acquisition before our next call. We have commenced leasing at this property and have leased 9% of the 463 apartment homes, also at rents in excess of our underwriting.

Expect to hear more about match funding strategies as REITs and other property owners discuss their capital allocation strategies. To be clear, match funding is hardly a new tactic. But as the capital markets remain volatile and uncertain, it is a tactic that is seeing increased use. For example, this past quarter Corrections Corp. of America put in place an at-the-market equity distribution program to help it raise equity capital when needed to match fund proceeds with its M&A activity, according to CEO Damon Hininger. Nor is this a strategy limited to acquisitions. As more public repurchase shares, they are turning to match funding via dispositions.  One example is RLJ Lodging Trust, which repurchased some 510,000 share for $11.3 million in the first quarter. It plans to repurchase more shares by match funding with the proceeds generated from non-core asset sales.