Starwood Buys Massive Multifamily Portfolio for $5.4B

A look at Starwood's largest ever non-hotel acquisition.

Greenwich, Conn.—Starwood Capital Group’s Starwood Global Opportunity Fund X (SOF X) has struck a deal to acquire a portfolio of 23,262 apartment units in 72 properties across the United States from Equity Residential. The transaction, which is expected to close in the first quarter of 2016, is valued at $5.365 billion. It’s the largest non-hotel purchase in Starwood Capital Group’s history, according to the Connecticut-based company.

Comprising a mix of mid-rise and garden-style apartment buildings, the portfolio’s assets are in five states, including major concentrations in South Florida; Denver; Washington, D.C.; Seattle; and the Inland Empire in Southern California. The portfolio is being traded unencumbered of existing debt.

Starwood CEO Barry Sternlicht emphasized that his company believes in “multifamily housing’s continuing ability to offer superior risk-adjusted returns. The strong underlying demographics for apartments and positive leverage—resulting in robust cash-on-cash yields—make this portfolio a very attractive investment.”

Following the final closing of the transaction, Starwood Capital Group will control more than 88,000 units, making the company one of the largest owners of multifamily housing in the United States. Including this transaction, Starwood has acquired or is under contract to acquire about 67,800 multifamily units over the last 12 months.

The acquisition comes on the heels of another SOF X acquisition last week, in a partnership with Milestone Apartments Real Estate Investment Trust. The two acquired Landmark Apartment Trust, a multifamily REIT, for about $1.9 billion. That acquisition is expected to close in the first quarter of 2016.

For its part, Equity Residential plans to use most of the proceeds from the sale—and others it plans for next year—to pay shareholders a special dividend of between $9 and $11. The other properties Equity plans to sell include 26 properties totaling 4,728 apartments, with 3,364 of those in “non-core submarkets” in Massachusetts, as well as in Connecticut. Those sales will probably be as part of individual deals or in small portfolios.

“This is an extremely opportune time for Equity Residential to monetize our investments in this portfolio of assets,” CEO David J. Neithercut noted. “In doing so, not only have we demonstrated the enormous value created for our shareholders through the realization of an unlevered internal rate of return of 11.1 percent, but we have also narrowed our focus which will now be entirely directed towards our core, high-density urban markets.”