Massive Apartment Deals Demonstrate Value Of Apartment REITs

Core Insights - Equity Residential (EQR) acquired 11 apartments with 3,572 units from Blackstone for $964 million, expanding its presence in Dallas, Denver, and Atlanta [1] - The transaction price of $270K per unit is slightly below the average pricing of apartment REITs, which trade at $278K per unit [1][3] - There is a significant geographical valuation disparity, with coastal apartment REITs trading between $400K-$450K per unit due to higher construction and rental costs [2] Group 1: Transaction Details - EQR's acquisition allows it to strengthen its foothold in three robust submarkets: Dallas, Denver, and Atlanta [1] - The deal price reflects a valuation that is attractive compared to replacement costs, indicating EQR purchased the properties for less than current construction costs [6] - Blackstone's motivation for the sale may have been driven by liquidity concerns and a desire to diversify its asset portfolio [6] Group 2: Valuation Comparisons - The pricing spread between the transaction and other REITs suggests that either the deal was overpriced or public REITs are undervalued [5] - Public apartment REITs are trading below asset value, with implied cap rates between 6.4% and 7.1%, while apartments are transacting at lower cap rates of 4.75% to 5.75% [6][7] - The average multifamily REIT trades at 18.5X 2025 estimated AFFO, indicating a potential undervaluation in the sector [11] Group 3: Market Dynamics - The transaction highlights a trend where apartments are selling for significantly higher prices than the current valuations of public REITs, suggesting a disconnect in market pricing [9] - Recent transactions indicate that private market apartment sales are occurring at prices $100K higher per unit than public market valuations [9] - The overall multifamily investment landscape shows that companies like BSRTF, NXRT, CSR, and CPT are viewed as compelling investment opportunities within the sector [22]