Private equity real estate giant Starwood Capital Group is continuing to push into the multifamily asset class. The Greenwich, Connecticut-based firm agreed to purchase over 23,000 apartments throughout five states from Equity Residential at a cost of about $231,000 per unit, the firms announced Monday. The units comprise about a quarter of Equity’s apartment portfolio.
The $5.4 billion acquisition, which comes with no existing debt, is the largest non-hotel purchase in the firm’s history. After the deal closes in the first quarter of 2016, Starwood will own 88,000 units.
The latest deal came through the Starwood Global Opportunity Fund X, a $5.6 billion fund for which Starwood held a final close in March. Last week, Starwood announced it would partner with Milestone Apartments to acquire multifamily REIT Landmark Apartment Trust for $8.17 per share. The all-cash transaction values the Landmark Apartments at approximately $1.9 billion, including the assumption of existing debt, giving Starwood 19,615 units.
Starwood’s push into the multifamily business comes after the firm agreed last month to combine its single-family rental business, Starwood Waypoint Residential Trust, with Colony Capital’s Colony American Homes. The merged company is expected to own and manage more than 30,000 homes and have an aggregate asset value of $7.7 billion at the transaction’s closing, which is expected during the first quarter of 2016.
Other private equity firms are also making headlines with huge multifamily deals. The Blackstone Group, the country’s largest private landlord, announced last week it is buying Stuyvesant Town-Peter Cooper Village in Manhattan for $5.3 billion. The 80-acre property makes up nearly 2 percent of the island’s housing stock.
These huge purchases come as investors question in what direction the market is moving. Equity Residential founder Sam Zell told The Wall Street Journal on Friday that his company has become “less aggressive as buyers of assets” recently. The Chicago-based firm has pivoted away from suburban markets to buy in urban centers where young people are moving. Equity said it plans to unload another 4,728 apartments in 2016, including all of its Connecticut assets, for about $700 million.
On Equity’s third quarter earnings call today, executives noted said they looked for purchasers who could move quickly with a large amount of capital. The company looked to exit these properties because they did not align with a focus on core markets. Chief Executive Officer David Neithercut noted the potential for disruption through rising interest rates or changing liquidity.
“I think these are terrific markets,” he said on the investors’ call. “They’re a little more susceptible to supply (changes) over the long term.”
Starwood, by contrast, is betting on multifamily across the country. Most of the units in the purchase from Equity are garden-style and mid-rise units in suburban markets around South Florida, Denver, Seattle, Washington DC. and Southern California.
“The size of this transaction underscores our conviction in multifamily housing's continuing ability to offer superior risk-adjusted returns,” said Barry Sternlicht, Starwood’s chief executive officer, in a statement Monday. “The strong underlying demographics for apartments and positive leverage–resulting in robust cash-on-cash yields–make this portfolio a very attractive investment.”
Other recent investments from Starwood’s opportunistic fund include two Luxembourg office buildings, a mixed-use property in suburban Denver and the top four floors of Macy’s department store in downtown Seattle.