Safe harbor
AvalonBay Communities has chosen a safe harbor on the East Coast for part of the re-launch of the REIT's development activities after a four-quarter development start hiatus.
The mainly bi-coastal apartment REIT broke ground for two new apartment projects in Q4 2009. The 219-unit, $36 million second phase of Avalon Northborough, in a suburb about 22 miles west of Boston got underway in October, followed by the start of the 180-unit, $30 million Avalon West Long Branch in West Long Branch, N.J.
Both markets represent safe havens for the REIT that was born in 1998 of the marriage of East Coast-focused Avalon Properties, Inc., and Bay Apartment Communities on the country's western shore and today owns or holds interest in 172 apartment communities containing 50,114 units in 10 states and the District of Columbia.
"Clearly, in some markets, development doesn't underwrite. In some markets, there is significant discount to replacement cost to buy assets. There are submarkets, however, where yields are above cap rates," said AvalonBay President Tim Naughton during the REIT's September earnings call, pointing to the New Jersey and Boston locations where the REIT broke ground late last year.
"For both of those deals we are looking at initial yields somewhere around the eight percent range, where cap rates would trade in those markets somewhere certainly sub-seven percent," said Naughton, who puts Boston and Washington, D.C.,
