Good Buys Hard to Find for Multifamily REITs

Out-going chief executive officer Douglas Crocker II had set $500 million as the target for 2002 multifamily buys. Meanwhile, AMLI Residential Properties Trust president Allan Sweet says his REIT will fall short of the $100 million mark in 2002 purchases, which is $50 million off target.

Equity Residential president Bruce Duncan says during an earnings conference call Tuesday the largest US multifamily REIT expects to be a net seller in 2003, as it shoots for $700 million in dispositions against $500 million in purchases or new developments. The remaining $200-million gap could be used to pay down debt or buy back shares of Equity Residential common stock, he says.

A few blocks away, Sweet says Amli Residential will aim for $100 million to $150 million in joint venture acquisitions next year. "Next year may be a little easier," he predicts.

Duncan says his REIT has seen a recent pick-up in submissions, with sellers looking for a quick close rather than a maximum price. However, "cap rates continue to be historically low nationwide," Duncan says, with sales prices remaining flat even as property revenues decline as vacancy rates remain stuck in double digits. With low interest rates, buyers or owners are getting "substantial cash flow" from multifamily properties, Crocker explains.

"Assuming interest rates don't go up, there continues to be great demand for this product because people are looking for alternatives," Duncan says.

Through September, Equity Residential had acquired 3,053 units for $245.4 million, buying in at a 7.8% capitalization rate, Duncan reports. The properties under letters of intent cover another 581 units at a potential price of $44.5 million, with the cap rate remaining 7.8%. Meanwhile, Equity Residential has shed 6,046 units for $338.9 million, Duncan adds, selling at an 8.4% cap rate. Another 4,360 units are under contracts or letters of intents for $189.6 million, representing an average 8.7% cap rate, he says.