RICHARD BOALES HAD bought multifamily projects from other developers before, but never one that was halfway through construction. When Boales joined Chicago-based Equity Residential in 2004, one of the first hits on his radar as a senior vice president was a 22-acre master-planned site in Hyattsville, Md.—a bedroom community inside the Washington, D.C., beltway and just a couple of miles from the University of Maryland's mammoth main campus. The site included a metro stop, 10 acres of retail, hotel, and office space, and just over 5 acres ripe for a mid-rise multifamily project.Equity made preliminary offers to joint venture or purchase the multifamily component, but lost out to Bethesda, Md.-based Mid-City Urban, which broke ground on the 260-unit Mosaic apartment building in early 2006 courtesy of HUD 221(d)(4) financing.

“Year one there were significant infrastructure delays,” Boales recalls. “By 2007, a number of investors felt the market was peaking, the project had schedule challenges, and there was a renewed interest in a sale.” Enter Equity. The firm was contacted in fall of 2007 and spent the entirety of that fall into February of 2008 doing due diligence and re-penciling the deal. In May 2007, Equity finally closed the deal.

“We had to get HUD approval to assume the construction loan, Washington Metropolitan Area Transit Authority approval to assume the ground lease, and then we had to start hitting the moving targets of a project under construction,” Boales says. “It was a long, arduous process, but we did get there.”

Credit that to a construction team that was able to get the project under control and deliver portions of the development in November 2008 prior to the official grand opening in March of this year. Although Equity missed the window for the '08 student housing surge from the University of Maryland, the company nonetheless was able to aggressively pre-lease by opening a leasing office across the street from the property during construction. Units range from $1,275 studios to $2,145 three-bedroom units.

Despite competing against four simultaneous lease-ups, Mosaic is beating absorption pro formas by five months: In July, the property was 85 percent occupied with the '09 student housing lease-up right around the corner. Although success with the distressed property was a long time coming, the combination of a transit-oriented, prime infill location in a submarket relatively bereft of multifamily luxury product was too good for Equity to ignore.