AvalonBay acquired the property in 2010 from a joint venture between Federal Capital and Angelo Gordon for $101 million, or $147,661 per unit. The JV had bought the apartment in 2006 for $86 million and renovated it in 2008.

Shifting Fundamentals

Presumably, AvalonBay sold Eaves as part of the normal acquisition-disposition cycle that all investors (outside of the buy-and-hold-for-decades group) have. At the same time, fundamentals for apartments are starting to shift slightly due to several factors. To be sure, seven years is a typical hold period for the REIT. Yet, it is becoming clear that market segmentation for investors is becoming more important than ever before as the apartment asset class moves through its cycle. It is possible that Eaves no longer fits in with AvalonBay's target market of college-educated young adults.

CEO Tim Naughton went into some detail in the REIT's earnings call earlier this month about these issues.

On one hand, he said, the under 35 young adult demographic is experiencing job growth close to 4% — the highest seen this cycle. Also family formation is on the decline — all of which means more young people are moving into, and staying in apartments longer.

On the other hand, the for-sale recovery is gaining momentum finally and in fact is driving almost all of the housing supply growth while multifamily starts have flattened over recent quarters. ”We are seeing an overall housing picture where overall housing demand is becoming more balanced between single-family and multifamily…just about more than any time over the last 15 years,” Naughton said.

This latter point might be worrisome for AvalonBay — or at least a trend to watch — but Naughton notes that the markets in which AvalonBay is active are experiencing a higher supply of stock — 2% – which is a third higher than seen in 2016. “And once again new supply should be concentrated in urban submarkets which should see almost twice the deliveries that the suburban submarkets in our markets will see in 2017,” Naughton said.

ARLINGTON, VA–AvalonBay Communities has sold Eaves Gaithersburg, a 684-unit apartment community located at 750 Clopper Rd., for $117 million, or $171,053 per square foot. Transwestern's Mid-Atlantic Multifamily Group's Dean Sigmon and Robin Williams were retained in September 2016 to market the 58-building complex.

The property was purchased by the Orlo Fund.

“The property offered a rare, sizable multifamily opportunity to improve rent growth through more accretive interior renovations and amenity enhancements,” Sigmon said in a prepared statement.

In an interview with GlobeSt.com last year when the property was put on the market, Sigmon said that despite Eaves Gaithersburg's Class B status, the in-unit improvements would make it competitive with the nearby Class A properties. Also, the units range from one to three bedrooms, with two-bedroom/ two bathroom units as well — a distinction from its Class B competitors.

AvalonBay acquired the property in 2010 from a joint venture between Federal Capital and Angelo Gordon for $101 million, or $147,661 per unit. The JV had bought the apartment in 2006 for $86 million and renovated it in 2008.

Shifting Fundamentals

Presumably, AvalonBay sold Eaves as part of the normal acquisition-disposition cycle that all investors (outside of the buy-and-hold-for-decades group) have. At the same time, fundamentals for apartments are starting to shift slightly due to several factors. To be sure, seven years is a typical hold period for the REIT. Yet, it is becoming clear that market segmentation for investors is becoming more important than ever before as the apartment asset class moves through its cycle. It is possible that Eaves no longer fits in with AvalonBay's target market of college-educated young adults.

CEO Tim Naughton went into some detail in the REIT's earnings call earlier this month about these issues.

On one hand, he said, the under 35 young adult demographic is experiencing job growth close to 4% — the highest seen this cycle. Also family formation is on the decline — all of which means more young people are moving into, and staying in apartments longer.

On the other hand, the for-sale recovery is gaining momentum finally and in fact is driving almost all of the housing supply growth while multifamily starts have flattened over recent quarters. ”We are seeing an overall housing picture where overall housing demand is becoming more balanced between single-family and multifamily…just about more than any time over the last 15 years,” Naughton said.

This latter point might be worrisome for AvalonBay — or at least a trend to watch — but Naughton notes that the markets in which AvalonBay is active are experiencing a higher supply of stock — 2% – which is a third higher than seen in 2016. “And once again new supply should be concentrated in urban submarkets which should see almost twice the deliveries that the suburban submarkets in our markets will see in 2017,” Naughton said.