Apartment Investment and Management Co. (Aimco) is bolstering its Philadelphia operation with a $445 million acquisition. The Denver-based firm has entered into a transaction to purchase a six-property portfolio comprising 1,006 existing apartment homes, 110 apartment homes under construction, and 185,000 square feet of office and retail space from Dranoff Properties.
The acquisitions are expected to close in the second quarter, except for the purchase of One Ardmore Place in Lower Merion Township, Pa., which is slated to close next year after construction is complete. The “A” quality portfolio is located primarily in the Center City and University City submarkets of Philadelphia. It also includes a 341-unit development in Camden, N.J.
Here’s a breakdown of the properties:
“With a pipeline of new and exciting projects on the horizon, the timing is right to sell six of our premier properties to Aimco and become a major investor in the company,” said Carl Dranoff, founder and CEO of Dranoff Properties, in a statement. “Aimco's expansion and commitment to Philadelphia make them ideal stewards of these trophy assets that we carefully built, owned, and managed."
The acquisition will be initially funded with $290 million of existing property debt, $65 million borrowed on the Aimco bank line, and $90 million in operating partnership (OP) units issued at an Aimco net asset value of $53 per share, according to Aimco, making Dranoff a company investor. The firm says it plans to sell lower-rated apartment communities to reduce debt, making the acquisition leverage neutral. One of the communities expected to be sold is Chestnut Hill Village, a 704-home property built in 1963 and located in northeast Philadelphia.
While Aimco is active in the value-add space, Wes Powell, Aimco’s executive vice president who led the acquisition team, tells Multifamily Executive that this was one instance when acquiring a portfolio of stabilized assets presented an opportunity for the firm.
Powell says Aimco will utilize its national operating platform to make running the newly acquired buildings more efficient on a day-to-day basis. “It doesn’t mean a reduction in services; it doesn’t mean we don’t provide the same if not higher level of customer service to our residents,” he says. “It’s just that we’re quite good at cost control.”
As part of its capital allocation program, Aimco will likely make upgrades at each of the properties, such as installing package lockers and adding wood floors in the bedrooms, Powell says.
“In a couple of the properties, we believe there are future redevelopment opportunities,” he adds. “Those plans are still in the works, and if something comes to fruition we’ll talk about it, but they weren’t contemplated as part of the valuation process.”
Once the deal closes, Aimco will own 3,208 apartment homes in the Philadelphia area, representing about 10% of the company's gross asset value, up from 8% today. That’s right where the firm wants to be, Powell says.
“We like that [Philadelphia is] more affordable than its peers on the East [Coast], and we like some of the fundamentals we’re seeing on the job-growth side,” he notes.
And while this acquisition is nearing completion, Powell adds, “We’re on the hunt in all of our target markets.”
