JVs Take Advantage of Rental Apartments: the Prize Asset for Ownership
Carl Gaines Nov. 2, 2012, 11:59 a.m.
Based on investment sales over the first nine months of the year, it looks like the No. 1 preferred asset is rental properties—especially in the metropolitan area. With record low vacancy rates—coupled with near-record high rents—local, national and international investors are seeking to own this asset class.
REITs, private equity funds, private investors and foreign investors are bidding up purchase prices. In addition to these investors, insurance companies, which have been and continue to be a major source of financing for the asset class, continue to seek the rewards of ownership.
One insurance company that has been an active owner of rental apartments since the early 1940s is MetLife. The company has built more than 15,000 residential apartments in Manhattan and the Bronx. Its first completed development was the Parkchester in the Bronx. This was followed by Stuyvesant Town/Peter Cooper Village and Riverton Houses in Harlem. In 2006, MetLife diversified its real estate equity portfolio, in part through the $5.4 billion sale of Stuyvesant Town/Peter Cooper Village, one of the largest real estate transactions in world history.
Earlier this year, UDR, the Denver-based REIT, formed UDR/MetLife II, wherein each party owns a 50 percent interest in a $1.3 billion portfolio of 12 operating communities containing 2,528 apartment units. Seven of the 12 communities (1,818 units) were contributed from the UDR/MetLife I joint venture. In Manhattan, the joint venture acquired Columbus Square, a total of 710 units consisting of five recently developed, high-rise apartment buildings on the Upper West Side of Manhattan. The joint venture paid $630 million, or $887,324 per apartment, for Columbus Square.
Two very active insurance companies investing in residential as well as office assets are Prudential Real Estate Investors and Northwestern Mutual Life Insurance Company.
In October, SJP Residential Properties broke ground on the Modern, a $500 million apartment development that will eventually include two 47-story towers with 900 apartments, built on a prime 8-acre site at the foot of the George Washington Bridge in Fort Lee, N.J. SJP Residential Properties’ joint venture equity partners include Prudential Real Estate Investors and Northwestern Mutual Life Insurance Company.
Earlier this year, Nicholas Jahnke, director at Northwestern Investment Management, told The Mortgage Observer that the company originated approximately $4.7 billion in debt and $2 billion in equity in 2011, including local market origination of about $850 million for a variety of asset classes.
In 2010 Northwestern provided $165 million in financing to a joint venture of Roseland Property and PREI (its joint venture equity participant) for the Monaco, located at 475 Washington Boulevard in Jersey City.
Then, in January of 2011, a joint venture of Fisher Development and Northwestern Mutual Investment Management sold Liberty Towers, two 37-story rental buildings in Jersey City, completed in 2003 with a total of 650 apartments. Buyer J.P. Morgan Investment Management paid $280 million, or $431,000 per apartment unit.
Northwestern has been an investor in a number of residential developments in Battery Park City. The company has been a joint venture partner with the Albanese Organization in the development of the Verdesian and the Solaire, the first luxury residential property constructed in Lower Manhattan since the 9/11 terrorist attacks.
This past July, Northwestern teamed up with New York Life to provide $185 million of debt for the 509-unit 1 North Fourth Place in Williamsburg to its partners, which include Douglaston Development and its joint venture partners AIG and MacFarlane Partners, for a mini permanent construction loan with a 13-year term.
PREI is the real estate investment management business of Prudential Financial. It has been investing in real estate on behalf of institutional clients since 1970, with gross assets of $36.6 billion under management in North America as of June 30, 2012. It has formed joint ventures with a number of real estate owners, developers and managers, including Roseland Property and SJP Properties.
“Pru has been our primary development, financial and intellectual partner since the mid-1990s,” Bradford Klatt, co-principal of Roseland, was quoted as saying last year. The companies have done more than $1 billion of business together, and there’s another $500 million of development on the slate.
TIAA-CREF is one of the largest institutional real estate investors in the U.S. TIAA-CREF began direct investment in commercial real estate in 1947. It has more than $18 billion of primary high quality properties in the office, retail, industrial and multifamily sectors across the U.S., Canada and Western Europe.
Earlier this year, the pension fund manager and institutional investor purchased a retail condominium at 225 West 83rd Street for $44.7 million. Retail tenants in the building include a Chico’s clothing store and Charles Schwab.
In June 2011, it purchased the land beneath the office building at 425 Park Avenue. According to city records, the purchase price for the land was $315 million. Earlier in the month, TIAA-CREF purchased the residential rental apartment component of the mixed-use tower the Corner at 200 West 72nd, paying approximately $209 million.
As we approach the end of the year, all signs point to the appetite for rental apartments remaining strong.
- 425 Park Avenue
- Columbus Square
- 1 North Fourth Place
- the Corner
- 475 Washington Boulevard
- MacFarlane Partners
- New York Life
- 225 West 83rd Street
- Nicholas Jahnke
- Roseland Property
- The Albanese Organization
- UDR/MetLife I
- UDR/MetLife II
- Prudential Real Estate Investors
- the Modern
- the Solaire
- the Monaco
- Fisher Development
- 200 West 72nd Street
- Douglaston Development
- SJP Residential Properties
- the Verdesian
- Bradford Klatt
- Liberty Towers
- Northwestern Mutual