Roohan: Home Properties’ $93M Herndon Deal No Anomaly

HERNDON, VA-Another day, another multi-million apartment acquisition for Home Properties, a REIT based in Rochester, NY. It has acquired the Courts at Dulles, in a roughly $93 million deal, GlobeSt.com has learned. Home Properties confirmed the sale.

The REIT has been on a tear in the Mid-Atlantic lately; just more than a month ago, it picked up a 31-building, 937-unit apartment complex in Alexandria, VA, for $205 million. But this activity is not limited to Home Properties. Multifamily sales, as anyone with a pulse in the commercial real estate community knows, are jumping.

“Year-to-date there have been $4.2 billion in multifamily transactions that have closed in the area, with an additional $1.8 billion under contract,” Bill Roohan, vice chairman of CBRE’s Multi-Housing Investment Properties division in the area, tells GlobeSt.com. “That is a total of $6 billion worth of deals.” Of that $1.8 billion, he acknowledges, maybe half will roll into 2012 before they close. Still, 2011 is poised to do well, compared to 2010 and 2009’s performance, he says.

In 2010, the area closed $3.5 billion worth of apartment transactions. In 2009, it closed a paltry $1.2 billion in deals. 2012, he predicts, will clock in largely the same as 2011.

In fact, investment sales and development activity has been so strong that talk of a bubble is already being whispered. Roohan pooh poohs the notion that a bubble may be forming, or less dramatically, that an oversupply situation is imminent.

The former is out of the question, he said, because cap rates remain reasonable and the capital stacks are not the extreme structures of the bubble times. “We have 10% to 25% of equity going into these deals. During a bubble, people would put in 2% or maybe 4% of equity and borrow the rest. We know how that turned out. “

The possibility of overbuilding is a more likely scenario, but even there Roohan doesn’t foresee it to be an issue for at least a year. Currently, there are 30,000 units scheduled to come online within the next few years, but he doubts all of these deals will come to fruition. “I would say we will start to reach an overbuilt market by 2013 or 2014.”

That, however, will be counterbalanced by apartment living drivers that show little sign of abating: One, jobs are improving. Two, homeownership no longer carries the prestige it once did and people are more inclined to rent as a result, and three, younger people are starting to move out from their parents’ homes and friends’ garages to get their own places.

All of this is true nationwide but especially so in the DC area, Roohan says. “Ten years ago we had only one driver for multifamily, which was jobs, so it is nice not to be totally dependent on that one category.”

For all of these reasons, investors such as Home Properties will continue to buy here for the foreseeable future, Roohan says, who represented the seller in the Herndon transaction, Archstone. “Now we are starting to see private capital investors that normally would want higher returns looking at class A or class B apartment deals here simply because they are tired of earning nothing on Treasuries.”