AvalonBay's $146M Multifamily Deal is the Latest for DC

GAITHERSBURG, MD-Arlington, VA-based AvalonBay Communities has acquired two apartment complexes in suburban Washington for a total of $146 million. AvalonBay paid $101 million for Grove Park, a 684-unit apartment community here and $45 million for Briarwood, a 348-unit apartment community in Owings Mills, MD. Grove Park was built in 1974 and renovated in 2005 and 2006. The seller was Federal Capital Partners and Angelo, Gordon. Briarwood is an 11-year-old development that includes townhomes.

The acquisitions were the fifth and sixth purchases made through the AvalonBay Value Added Fund II. During the recession AvalonBay recognized far earlier than other firms that multifamily was going to recover sooner than other sectors—a fact that is today quite obvious. Besides snapping up properties across the nation, the REIT is also launching an ambitious development program in select markets. In the DC area, it plans to build Avalon Park Crest in Tysons Corner, VA, for example.

In many ways, though, AvalonBay’s acquisitions here is a larger story about DC, whose fundamentals and demographics are almost tailor-made to produce a multifamily market that will be hot for years. The common denominator, Ari Firoozabadi, vice president of investments at Marcus & Millichap, tells GlobeSt.com, is the area’s job market.

Of the 750,000 new jobs added nationwide into the month of August 2010, 50,000 were added in the DC Metropolitan area and 19,000 in the Baltimore area, which totals approximately 9.2% of the total new jobs added, Firoozabadi says. “Approximately 40% of those new jobs were added in the month of March, and that is around the time we began to see vacancies trend downward, stabilization and signs of rent growth.”

For investment sales, those numbers--coupled with the limited rental product to be delivered in 2010, 2011 and 2012--means that most investors are underwriting between 3% to 7% rent growth depending on the submarket, he says. “I get blue in the face saying it, but the DC MSA is the most high-demand market in the country, and we regularly get “out-of-towners” calling for new opportunities,” Firoozabadi says. “In fact, we spoke with a New York-based operator yesterday that said the majority of its focus for year-end 2010 and 2011 will be multi-housing investments in the greater DC marketplace.”