As recently as two months ago, Alliance Residential was not planning to undertake any new construction in 2010. Strengthening property fundamentals and deeper market penetration has the Phoenix-based multifamily apartment developer and owner/operator rethinking its stance, with a groundbreaking in Washington, D.C., planned for the second quarter of 2010 and activity in California likely not far behind.
In particular, the company’s April 23 acquisition of the Foxwood Place apartment community in Alexandria, Va., via note purchase and foreclosure has provided Alliance with some intel into market fundamentals that will likely make yields pencil out on two land holdings the company has in the D.C. metro. “Washington is certainly in a lot better shape than most markets,” says Alliance CFO Jay Heimenz. “We have had the development presence there, but as the market changed, we began to look at acquisition opportunities as well. This specific deal was a good opportunity to get in a pretty close-in location by purchasing a financial instrument and convert it to real estate.”
Details of the note sale were not disclosed, but Heimenz characterizes the seller as a strong financial institution with whom Alliance had an existing relationship. “It was an off-market deal where we had a relationship with the institution,” Heimenz says. “We’re trying to use our savvy in the financial markets, and our institutional relationships, to create these types of opportunities versus bidding on the marketed properties, especially where we can do it on a relatively quiet basis and in a quick time frame.”
The 228-unit Foxwood Place will be re-branded as an Alliance-owned asset under the Broadstone community name and will undergo capital improvements to complement existing amenities, which include a pool, fitness center, tennis courts, resident lounge, and billiards room.
Then it’s on to construction for Alliance, which will look to break ground in the second quarter on two D.C. metro developments. “We’re anticipating coastal markets to begin to support development activity this year, and we think you are there already in D.C. where the yields are attractive relative to where you can buy assets. As values have crept up, cap rates have gone down, and yields now warrant doing development versus acquisition. But D.C. will be our first market after the hiatus where we will break ground, and after that I think Northern or Southern California is next.”