The Real Deal Miami

Starwood buys 23K rentals from Sam Zell for $5.4B

Units are mostly located in low- and mid-rise suburban buildings

October 26, 2015 02:15PM

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Barry Sternlicht Sam Zell

From left: Barry Sternlicht and Sam Zell

From the New York website: Barry Sternlicht’s Starwood Capital paid Sam Zell’s Equity Residential $5.4 billion for a massive portfolio of suburban rental units in cities throughout the country, the second multi-billion-dollar deal in the last week.

The 23,300-unit portfolio, about a quarter of Equity’s holdings, mostly consists of apartments in low- and mid-rise buildings in suburban markets around South Florida, Denver, Seattle, Washington, D.C., and in Southern California.

Starwood is paying approximately $230,600 per unit, which represents a capitalization rate of 5.5 percent, about on par with recent deals, the Wall Street Journal Reported.

Zell, famous for selling his Equity Office Properties in 2007, at the top of the real estate market, is shifting his emphasis from suburbs, where new construction abounds, to urban cores where new building is more difficult.

His company has become “less aggressive as buyers of assets,” he told the Wall Street Journal. “There’s an awful lot of apartments under construction,” Zell said, “and the majority of them are garden apartments in suburban areas.”

Sternlicht, for his part, is ready to move in. His company has bought or put under contract 67,800 apartments over the past year.

“This is the healthiest U.S. apartment market in my lifetime,” Mr. Sternlicht said in an interview Friday. “We don’t see that trend reversing.”

Average apartment rents in the U.S. have climbed 20 percent over the past five years, according to research firm REIS Inc.

The price of the deal just barely exceeds the other earth-shaking buy of the month, the Blackstone Group’s acquisition of 11,000-unit Stuyvesant Town along with partners Ivanhoe Cambridge, for $5.3 billion. [WSJ] – Ariel Stulberg