Meanwhile, Equity’s foot soldiers on the ground were telling Neithercut’s team that residents were renewing at higher percentages. (What’s more, as 2010 progressed, renewals came in at higher rents—during the year, asking rents rose 9 percent).
Those improvements gave Equity the confidence to start making deals. “Equity got aggressive early on in the acquisitions front,” says Andrew J. McCulloch, an analyst for Green Street Advisors, a Newport Beach, Calif.-based research firm. “It was also the first to start pushing rents in anticipation of improved demand. Equity turned out to be right on both fronts.” Equity first struck in October 2009, spending about $100 million for the Metropolitan at Pentagon Row, a 326-unit high-rise in Arlington, Va. (Less than a year later, the property’s sister complex, The Metropolitan at Pentagon City, sold for $25 million more.) In January 2010, it again bought in Arlington, securing Vista on Courthouse for $85 million. “Equity was early to the market and bought deals that people thought they had overpaid for, but they turned out to be great deals,” says Ric Campo, chairman and CEO of Camden Property Trust, a REIT based in Houston.
Those transactions raised eyebrows, but they were overshadowed the next month when Equity bought three buildings in Manhattan from New York developer Macklowe. Equity liked the per- square-foot and per-unit numbers on the deal. Plus, Zell always liked New York. “There’s no place in the United States where the density is as high as New York,” he says. “It’s a 24/7 city, a beacon. It’s where every young college graduate wants to go for a couple of years. And for us to be a national company with no presence in New York made no sense. Consequently, one of our objectives in repositioning the company was to become a serious player in the New York market.”
To get the deals from Macklowe, who was widely reported to owe creditors a substantial amount of money, Equity paid $475 million and assumed existing financing. “They started buying towers in New York in mid-5 to upper-5 percent cap rates,” says William Acheson, a REIT analyst with New York-based Benchmark Capital. “If you tried to buy those same properties now, you’d be paying a sub-5, easy.”
