Home Finance UDR Plans for Higher Cap Rates by Buying Apartments Still in Development

UDR Plans for Higher Cap Rates by Buying Apartments Still in Development

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8th & Republican in Seattle

By Jon Peterson

Denver-based UDR will be able to achieve cap rates that are 50 to 125 basis points higher by buying apartments in Seattle and other markets that are still under construction.

The stabilized cap rates on the properties now under development will be five percent. This is compared to current market cap rates on existing properties, which are coming in at the range of 3.75 percent to 4.50 percent, according to a public document from the UDR Web site.

The properties being acquired by UDR are part of a development joint venture with Scottsdale, Ariz.-based The Wolff Company. A company representative of UDR declined to comment publicly when contacted for this story. There are two properties in the venture that UDR has bought located in Seattle.

One of these is the 211-unit 8th & Republican property located in Seattle. This property also has a 13,600 square foot retail component. The property had a going-in valuation of $97 million and an all-in price with option of $103 million. The cost per unit of $449,000 does not include the retail part of the property. This development was started in the third quarter of last year and could be completed by the first quarter of next year. The estimated stabilization date is first quarter of 2017.

This project is located in the South Lake Union submarket. UDR stated in a document that around $2.85 billion of public and private funds have been committed to developing the neighborhood with two million square feet of office, laboratory, hospitality and retail space already added, under construction or on the drawing board.

The other property acquired in Seattle is the 244-unit Columbia City property in Columbia City. This asset has a going-in valuation of $80 million and an all-in price with option of $85 million. The price per unit is $350,000. This property had a construction start date of the third quarter of last year and could be finished by the first quarter of 2016. UDR estimates the property will become stabilized in the third quarter of next year.

Columbia City is a southern suburb of Seattle. The complex is a transit-oriented community as its situated one block away from the Link light rail system. This project will allow renters public transportation to downtown Seattle and the SeaTac airport.

There are three other properties in the venture. Two of these assets are located in Orange County, Calif. and the other is in Los Angeles.

UDR considers Seattle to be one of the public REIT’s core costal markets, according to one of its public documents. This market now makes up 6.5 percent of the company’s total net operating income.