Equity Residential Returns To Atlanta With Midtown Skyhouse Purchase
A Chicago-based apartment giant has made a dramatic re-entrance into the Metro Atlanta multifamily market.
Equity Residential purchased Skyhouse South, a 23-story apartment tower at 100 Sixth St. in Midtown, from Novare Group and Batson Cook Development Co. for $115M, or $341K per unit. Lee & Associates Director Allen Eager brokered the sale of the 320-unit building on behalf of publicly traded EQR.
The purchase comes eight years after EQR exited the Metro Atlanta apartment market when it sold its nine-property local portfolio for $356.2M. The REIT sold the properties to help fund its purchase of Archstone from Lehman Brothers in a joint venture with AvalonBay Communities.
In its return to Atlanta, EQR, the fifth-largest multifamily owner in the nation with more than 78,000 units, according to the National Multifamily Housing Council, is focusing on acquiring properties in highly walkable urban locations with “highly rated universities” and suburban locations within commuting distance to employment centers, according to a June investor update posted online.
In the presentation, EQR also said it is focusing on locations where local governments have policies the firm deems “maintain a safe and attractive living environment for potential renters and their support of policies that encourage local economic growth and sensible housing regulations."
EQR also is shying away from markets where it has older properties, where it is overconcentrated or “jurisdictions with challenging regulatory environments,” the company said in its presentation.
Despite the 1,800 new apartment units expected to deliver in Midtown this year, EQR asserted that older Class-A apartments in the submarket will benefit from “a significant rental premium” of the newest apartments because of escalating construction costs.
“The limited number of properties expected to be delivered will need to rent at a significant rental premium to Skyhouse, given high construction costs, positioning Skyhouse well for future rent growth,” EQR stated in its presentation.
Newmark Vice Chairman Derrick Bloom said the market is expecting sales to reach new highs over the next few months in Metro Atlanta as investors flock to both suburban apartments and urban high-rises.
“[Atlanta] is one of the cities that has a lot of job growth, and also we're open from Covid,” Bloom said. “You're going to continue to see high-water mark sales.”
On a per-unit basis, Skyhouse South ranks the third-most-expensive multifamily sale in Atlanta this year, which so far has seen more than $5.1B in trades, according to CoStar data provided to Bisnow by Colliers. The priciest sale so far in 2021 was GID Investment Advisors' June acquisition of the Windsor Interlock, a 349-unit apartment complex on Midtown's Westside, for nearly $395K per unit, according to CoStar data.
EQR's purchase, at a 3.6% capitalization rate, it told investors, lands just behind Walton Street Capital's buy of the 300-unit Halcyon Grand apartments in the Halcyon mixed-use project in Forsyth County in March for $345K per unit.
GID's purchase of Elevate West Village at 4520 Pine St. in Smyrna, a 314-unit property for $307,300 per unit in April, and White Oak Realty Partners' purchase of the 298-unit MarketPlace Terrell Mill apartments in April for $87M round out the five priciest sales of the year so far.
While sales dropped 20% during the first part of 2020 due to the coronavirus pandemic, apartment prices nonetheless jumped up 12% to an average of $136,500 per unit, according to a first-quarter Marcus & Millichap report.
The Atlanta apartment market's strength is pricing out smaller investors, who are competing with deeper-pocketed groups willing to buy Class-B and Class-C apartment properties, Bull Realty Vice President Maria King said. That demand is leading to increasing prices during the negotiation phase.
“Cap rates are crazy. Prices are crazy,” King said. “And these are off-market deals. First, you find it's $12.5M and then three weeks later, you find it's a million dollars higher. [Sellers] are doing that because they can.”
King said she is helping a seller close a Class-C apartment complex in Jonesboro in the next couple of weeks. Usually, that type of apartment project would attract small investors. This time, an institutional investor is expected to close on the transaction.
“I did have some of those smaller investors who maybe wanted to get into the Atlanta market look at it first, but because of cap rates and pricing, it just wasn't feasible for them,” she said.
