If you want to know what your home is worth, you can put it up for sale and see what you can get. An easier and less disruptive way to determine value is to see what your new neighbors paid. A recently announced transaction could provide some insight into the market values of South Florida multifamily properties.
The Real Deal recently reported that on August 30, Hines Global Income Trust completed the $430 million purchase of the 495-unit Gables Station apartment. On the face of it, a $430 million acquisition price translates to a whopping $870,000 per apartment key, but as a 2022 mixed-use development, there’s more to consider with this property.
In addition to the 495 apartments, Gables Station includes 105,000 square feet of retail space occupied by an athletic club, coworking space, Trader Joe’s, and Italian restaurant. If we do a simple breakdown of commercial space at different valuations, we can get approximate ranges for the price of the multi-family portion.
Pricing commercial space in the wide range of $400 to $1,500/sq ft and subtracting the total transaction price still yields a price ranging from $550,000 to $780,000 per apartment. Although we have no financial interest in the buyer or seller of this property, a quick tour of the Portfolio Income Solutions property directory will tell us who owns multi-family property in the neighborhood, and we can start speculating on what these properties might be worth.
Multifamily in the Miami MSA
In the selection of multi-family properties owned by public companies in the MSA Miami-Fort Lauderdale-Pompano Beach, we see 82 properties with a total of more than 22,000 apartments. The data appears to be current as the August 30 purchase of Hines Global Income is on the list.
From a key number perspective, Camden Property Trust (CPT), AvalonBay Communities (AVB) and Apartment Income REIT (AIRC) are the most exposed with over 3,000 apartments each. But they are larger companies and the exposure to Miami MSA is small relative to each of their entire portfolios.
At 1,396 Miami-area units, however, Aimco’s $1.4 billion market capitalization (NYSE: AIV) is a much more interesting comparison with the Gables Station transaction. In total, AIV has 2,896 apartments in the state of Florida, or 30% of its entire portfolio. Although Miami prices are not representative of all of Florida, immigration and job creation are popular demographics statewide. Thus, for the current transaction, AIV should prove to be the most illustrative comparative example.
After spinning off AIRC in late 2020, Aimco stopped looking or behaving like a multi-family REIT. They stopped paying a dividend. They stopped reporting in terms of FFO/share. They stopped hosting quarterly earnings conference calls. Although they didn’t list their preferred pronouns, AIV is no longer a REIT, it’s much more like a REOC. Based on its operations, AIV has evolved into an opportunistic player in the often exciting field of multi-family development.
According to the results and the additional AIV report for 2T22:
Wes Powell, CEO of Aimco:
“During the year, we sold two multi-family assets stabilized above the values used in our internal net asset value (“NAV”) estimate and also added multi-phase development opportunities in the South Florida and Washington, D.C. With opportunities coming directly from the Aimco team, our future development pipeline has nearly tripled since the start of 2021, and now, in total, has the potential for over 15 million square feet of residential and mixed-use development.”
Specifically, “In May, Aimco sold Pathfinder Village, a 246-unit apartment community in Fremont, California, for $127.0 million. The proceeds, net of repayment of existing real estate debt and costs related to the transaction, amounted to $71.8 million.” The Freemont, California apartments sold for $516,000/unit, well below the lowest estimate for Miami property sales.
“In July, subsequent to the end of the quarter, Aimco sold Cedar Rim, a 104-unit apartment community in Renton, Washington, for $53.0 million. The property was held debt-free prior to the sale. ” Renton, WA doesn’t bring the heat of the Miami market, but, still, $510,000/unit!
And then, “Aimco is under contract to sell 2900 on First, a 135-unit apartment community with 14,000 square feet of retail space located in Seattle, Washington for $69.0 million. This sale of this property is expected to be concluded in August” Again, $511k/unit.
What we see in these transactions is that AIV has turned what could be accurately described as real estate speculation into trading profits in the real market, in the real world, and over a full cycle. They follow up with the aforementioned development pipeline which has almost tripled since the start of 2021.
The value proposition
Over the past five years, many apartment-focused REITs have had similar successes to the AIV detailed above. They developed/acquired/rehabilitated properties which they then sold for a profit and recycled capital into new opportunities. AIV has gone even further to get closer to creating full shareholder value.
In the table below, please focus on total returns over the past year. We see Aimco posting an impressive +18.9% while the balance generated negative returns of equal magnitude.
Month by month, apartment rents have reached new levels, resulting in record NOI growth. Somehow, however, REIT investors displayed collective anxiety and the three-year stock price appreciation evaporated in the first eight months of 2022. Operationally, multi-family REITs work great, but it really hurts if you’re long on stocks.
AIV seems to have avoided this decline and I believe that two active initiatives are responsible for the result. First, Aimco affirmed its share buyback program.
You can see that the weighted average buy prices of $5.73 to $5.93 not only represent a considerable reduction from the recently published net asset value, but also from their recent market close of 9.00. $. AIV continues to recycle capital into promising new developments, but they have also actively pursued the upside that presents itself in buying back their own heavily discounted shares.
The second effective initiative to create shareholder value comes in the form of securing long-term capital. While other REITs have succumbed to the whims of retail investors who get dirty every time they hear the Fed might raise interest rates, AIV on Aug. 11 announced a joint venture agreement with Alaska Permanent Fund Corporation to a new multi-family development of up to $1 billion. If I understand the historical behavior of institutional investing, Aimco will still invest the money from the Alaska Permanent Fund even if our fear of recession becomes a real recession.
Buy, sell or keep?
Although I have long been an AIV holding large enough to hold my attention, I confess that I was not prescient enough to buy below $6.00 like the company’s stock buyback program did.
I think our real estate transaction exercise has demonstrated that even if AIV’s stock price is up, the stock can still trade at a discount to its net asset value. Share prices of other multi-family REITs that own assets in the same submarkets as AIV are down 15%, 20%, or even 25% year-to-date. I own some of them and optimistically think they have more future potential than AIV.