Real Deals

Institutional investors bet big on Triangle apartment market

dbracken@newsobserver.comAugust 29, 2012 

Among the biggest real estate stories in the Triangle over the past two years has been the arrival of so many institutional investors in the marketplace.

While some of these deep-pocketed buyers are new to town, others, such as Associated Estates Realty, are rediscovering the region after departing six years ago.

Over the past three months Associated Estates, a publicly traded real estate investment trust based in Ohio, has paid nearly $110 million for three Triangle apartment complexes, according to property records. In May, the company paid $39.25 million for The Apartments at the Arboretum, a 205-unit complex in Cary. The company paid $34.8 million in July for the 211-unit Southpoint Village apartments in Durham and, just this week, acquired the 344-unit The Park at Crossroads apartments in Cary for $35.2 million.

“We’re very bullish on the Triangle based on the projected household formation and employment growth and population growth over the next several years,” said John Hinkle, Associated Estate’s vice president of acquisitions. “It’s got a very diverse economy with high-tech, research and all the universities and hospitals.”

Hinkle’s description is one that has been repeated consistently by institutional investors in explaining their decision to bet big on the Triangle. Investors of all stripes are now desperately searching the globe for strong returns, and for real estate companies, the Triangle now fits neatly into the story of how they can deliver them.

“Our re-entry in the Raleigh-Durham market is consistent with our objectives on all fronts,” Associated Estates CEO, Jeffrey Friedman, said on a conference call with analysts last month.

Like many of its fellow apartment REITs, Associated Estates, which has more than 14,000 units in 10 states, has spent the past few years reducing the age of its portfolio by selling off older assets. The company has focused on replacing them with newer complexes that are located near key amenities – restaurants, shops, offices and public transportation.

“Our No. 1 focus when buying assets is being close to commercial, retail, public transportation as well as the road infrastructure,” Hinkle said. “We like to be as infill as possible.”

Southpoint Village and the Arboretum are in shopping centers that feature both retail and restaurants, while Crossroads is across from a new grocery store and two large office parks with several million square feet. The properties all have occupancy rates of 93 percent or above, according to data from Karnes Research and the Triangle Apartment Association.

If there’s a concern for apartment investors betting on the Triangle, it’s that too many new projects will be built in the coming years. New apartments are about the only commercial real estate projects being financed today, and rising rents and occupancy rates have caused scores of developers to propose projects.

“There’s obviously been a lot of talk about potential supply in Raleigh-Durham,” Hinkle said. “A lot of that will never get built.”

Associated Estates is also less concerned because few of those proposed projects are close to its Triangle properties.

“Even if we do see overbuilding in other submarkets within Raleigh-Durham our properties should be pretty well insulated,” Hinkle said.

With the sale of Crossroads, 21 Triangle apartment complexes have now sold this year for more than $600 million, according to CBRE, a commercial real estate services firm. Last year, investment sales of apartments in the Triangle totaled $966 million.

Hinkle said finding good assets at good prices here has become harder, but not impossible.

“A lot of core deals have traded here over the last three years but there’s still some additional opportunities,” he said.

Associated Estates acquired Crossroads in an off-market deal that included the assumption of a $25 million loan. Any Triangle apartment deal that’s openly marketed today is guaranteed to attract lots of institutional interest. Now that it’s regained a foothold in the Triangle, Associated Estates expects to add to its local portfolio in the coming years.

Hinkle was actually in the Triangle on Wednesday.

“I may or may not be trying to get more deals done here,” he said.

Bracken: 919-829-4548

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