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ALEXANDRIA, VA-AvalonBay Communities has formed a new fund that has been seeded with $333 million in equity commitments–$150 million of which was kicked in from AvalonBay. According to the REIT, with leverage this fund will have purchasing power of approximately $950 million. AvalonBay did not return a call from GlobeSt.com seeking comment.

Called Fund II, this capital pool will be used to acquire and operate multifamily communities in high barrier-to-entry markets in most of the country; specifically the Northeast, Mid-Atlantic, Midwest and West Coast. Acquisitions will also be made with an eye towards adding value through redevelopment, improving building operations and targeting markets that are expected to improve.

The fund, which has a term of 10 years, plus two one-year extension options, is going to be AvalonBay’s exclusive vehicle through which it will make its acquisitions for a period. It defines that period of time as three years from the closing date, or until 90% of its committed capital is invested. AvalonBay’s development activities, however, will be funded outside of Fund II.

In fact, the REIT is scaling back development for the year, Bryce Blair, chairman and CEO, told listeners in the Q2 earnings call. “Originally we expected to start between $900 million and $1.1 billion of new developments,” he said, according to a transcript of the call. “And our current estimate is for about $700 million of starts. Given the weakening economic environment and volatile capital markets, we felt it prudent to reduce our planned 2008 starts, electing to push some out to 2009.”

One project with which it is pushing forward is Somerset Development’s Westmont Station, where it just signed on as a development partner.

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