REIT Chief Says Exodus Comes Just In Time

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CHICAGO-Despite multifamily buildings now selling at capitalization rates more commonly seen in Southern California and South Florida, Archstone-Smith chairman and chief executive officer R. Scot Sellers believes his REIT began shedding assets here at just the right time. “We’re glad we sold when we did,” says Sellers during the Englewood, CO-based company’s earnings conference call Tuesday, noting his company has become an aggressive seller here and in non-core markets for the past 12 months.

Archstone-Smith recently sold two suburban apartment communities following its $130-million sale of Plaza 440 in River North earlier this year. The REIT still owns 3,158 units in the market, but its portfolio no longer includes a 240-unit property in northwest suburban Arlington Heights as well as a 488-unit asset in southwest suburban Willowbrook. The company got $87.8 million for the two properties, or $121,604 per unit.

The two second-quarter sales resulted in internal rates of return of just 7.9% for the two suburban properties, according to Archstone-Smith’s most recent financial report. In addition, while second-quarter revenue of $13.9 million was 3% better than the same period in 2004, expenses jumped 6.4%. That resulted in a meager 0.3% increase in net operating income to $6.9 million, despite a slight occupancy gain to 94.2%.

While condominium converters continue driving multifamily sales, Sellers believes the pool of potential buyers is drying up. “There are still buyers out there, but it’s limited,” Sellers says. “We thought this would be the first market to crack from a conversion standpoint, and I think we’re seeing that.”

Both properties, at 6060 Laurel Ln. in Willowbrook and 2400 S. Goebbert Rd. in Arlington Heights, were acquired by Archstone-Smith in 2001.