AEW, SWIB invest in US apartments

AEW Capital Management and State of Wisconsin Investment Board have formed separate joint ventures with Essex Property Trust.

The partnerships give the two institutional investors stakes in an existing, $888m (€645m) West Coast apartment portfolio.

AEW has taken the largest part of the portfolio with nine properties totaling 2,723 units in Southern California and Seattle areas.

Dan Bradley, AEW director, said: “The assets we purchased allowed us to buy into a high-quality portfolio in markets that we like.

”The properties are located in areas that have high housing costs and strong barriers to entry which keeps demand for apartments at a high level.”

Bradley added that high-level income returns appealed. “Our income yield on this transaction on a leveraged basis was 7%,” he said.

“We think that this is very good in comparison to the 3% to 4% cap rates that are being paid for many apartments in major West Coast markets.”

AEW applied 55% leverage to the transaction. Occupancy on the properties, built between the 1970s and 2004, is 96%.

AEW bought the assets for its open-ended Core Property Trust fund. The fund’s total assets were valued at $5.6bn at the end of March.

SWIB, meanwhile, bought apartments for two existing ventures it has with Essex. For its Wesco IV venture, the pension fund bought a portfolio of five apartments totaling 1,116 units in northern and southern California. Formed earlier this year, there is $160m of equity in the venture, with 50% coming from SWIB.

The Wesco III venture bought three properties in southern California totaling 336 units. Essex and SWIB formed Wesco III in 2012 with a total equity investment of $120m.

All of the properties in the joint venture were previously owned by BRE Properties, which Essex bought last month for $16.2bn.