Aimco Buys Out Palazzo JV Partners for $452M

The company sourced funds for the acquisition by taking title subject to existing allocable debt and using cash proceeds from the pending sales of some of its assets in the Northeast.

Palazzo_east_entrance_LAAimco, one of the top Los Angeles apartment owners, acquired the remaining stake in three Palazzo communities for $451.5 million. Institutional investors advised by J.P. Morgan Asset Management sold the 47 percent interest in the Mid-Wilshire district luxury assets. The company now owns 100 percent of the three Palazzo communities acquired from Casden Properties.

Palazzo at Park La Brea is a 521-apartment home community located at 6220 W. 3rd St. Aimco acquired a stake in the property in 2004 for $163 million. The property operated at 92.9 percent occupancy in May 2017, according to Yardi Matrix. Palazzo East is a 611-unit community located at 348 S. Hauser Blvd that was purchased for roughly $200 million in 2005. The asset had a 95.7 percent occupancy rate in May 2017. Villas at Park La Brea is a 250-apartment home community located at 5555 W. 6th St. Aimco bought a stake in the property in 2002 for $55.5 million. The asset had a 96.8 percent occupancy rate in May 2017. The communities are two miles away from Beverly Hills, Hollywood and Century City, while both Downtown LA and Santa Monica are short drives away. Amenities include a fitness center, swimming pool and spa/hot tub.

“We appreciate the Mid-Wilshire submarket with its highly educated and high-income customers who value the proximity to transportation, job centers and upscale retail, including The Grove, literally across the street,” said Aimco Chairman & CEO Terry Considine in prepared remarks, “and where we can see clearly that future development is increasingly difficult. We expect to continue the operation of the properties and to redevelop each, over time and at the right time, to serve different and distinctive market segments.”

Funding

The acquisition was funded by taking title subject to existing allocable debt of $140.5 million and by payment of $311 million in cash proceeds funded with bank borrowings pending the sales of properties located in Rhode Island, Virginia, Maryland and New Jersey. This leverage neutral paired trade transaction is expected to result in a 150 basis points higher free cash flow internal rate of return, to increase Aimco’s average monthly revenue per apartment home by $65 and to shift capital from submarkets with lower revenue growth prospects to a submarket with higher rent growth and higher margins.

Images courtesy of Palazzo East