MONTGOMERY VILLAGE, MD—The Donaldson Group of Rockville, MD and equity partner, New York City-based Angelo, Gordon have acquired Cider Mill Apartments here for $110 million, or approximately $127,000 per unit. The garden-style apartment community, which is situated on 42 acres, has 864 units spread across 72 buildings that were constructed between 1971 and 1973.
Matthew Williams and Maury Zanoff of CBRE Capital Markets helped the buyers secure financing from HSBC Bank for the deal. The seller was Home Properties, which was represented by Bill Roohan and Brian Margerum of CBRE in Baltimore.
The new owners plan to invest $15 million in renovations, which will include replacing the central heating and cooling plant with electric heat pumps for each apartment, upgrading the building facades and renovating the individual apartments.
This is, in short, a repositioning, value-add play.
"This property has significant upside potential," says John Majeski, SVP at The Donaldson Group, in a prepared statement.
As for Home Properties, it is selling the asset as part of a larger strategy to "lighten" its geographic concentration in the Washington, DC area, says president and CEO Edward J. Pettinella.
Net proceeds to the REIT, after closing costs and $58.5 million in secured debt repayment, were $47.5 million. The weighted average historical capitalization rate on the sale is 6.9% after applying a 2.7% management fee and before capital expenditures. A gain of approximately $31 million will be recorded in the 2014 first quarter.
With the sale of Cider Mill, the REIT now has 28% of its units in the D.C. region. Pettinella says that is an "appropriate level of concentration" and the REIT expects to remain at roughly that level going forward. "Because this property had been largely upgraded and was located in the weakest submarket of our D.C. region, the cap rate on the sale was higher than the average for property dispositions in 2013," he says in a prepared statement.
Home Properties purchased Cider Mill in September 2002.
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