This week, Starwood Capital Group’s Starwood Real Estate Income Trust, Inc. (SREIT), a non-traded REIT with $4.3 billion in portfolio assets spread across 106 properties, announced that it is acquiring two affordable housing portfolios with a combined 4,618 units located in 32 communities across the United States. Price and other terms of the transactions were not disclosed.
According to a company statement, the acquisition means that Starwood Capital, a private alternative investment firm based in Greenwich, Connecticut with more than $60 billion in assets under management for high net worth individual and institutional investors—along with SREIT and other sponsored investment vehicles—own or are under contract to buy more than 34,000 affordable housing units across the country. This will make the Starwood entities, collectively, a top three owner of such units in the United States.
Return to the Sun Belt
The acquired portfolios are 99 percent occupied and offer affordable options for renters in attractive Mid Atlantic and Sun Belt markets. The portfolio consists of garden-style residential units with amenities including swimming pools, clubhouses, playgrounds, fitness centers and laundry facilities.
More than half (57 percent) of the portfolio assets are concentrated in Washington, D.C. and Jacksonville, Florida, urban areas that have experienced population growth double that of the United States over the past ten years. Starwood notes that Washington, D.C. has a stable government and military employment base, while also benefiting from the recent influx of higher-paying tech (e.g., Amazon HQ2) and finance jobs.
Meanwhile, Jacksonville has experienced robust employment growth over the past five years, with a 16 percent increase in employment vs. a national average of 9 percent over that same time period. Both markets are projected to significantly outpace the U.S. average in population growth in coming years.
Other key markets within the portfolios include Raleigh, Charlotte, and Nashville, which all rank in the top 10 for projected five-year population growth, with estimates doubling that of the U.S. Additionally, over the next five years, these markets are projected to average annual income growth of 2.9 percent, which is 1.2 percent higher than the US projected income growth over the same time period.
“These transactions are an extension of SREIT’s successful investments in the affordable multifamily housing sector, providing us with a unique opportunity to acquire high-quality, well-located assets in scale,” said Starwood Capital Managing Director Mark Keatley. “These investments have good downside protection provided by highly occupied properties with in-place rents that are 26 percent below comparable market-rate apartment rents, thus generating strong and dependable cash flow. Furthermore, these portfolios are well positioned to deliver attractive risk-adjusted returns given the persistent supply/demand imbalance for high-quality affordable housing, and we see long-term benefit for residents across the country in maintaining the sustainability of affordable housing. We are pleased to add these residential communities to the SREIT portfolio and intend to continue to invest in the affordable housing sector.”
“Our experience with both affordable and market rate multifamily properties in these markets allowed us to underwrite and execute these transactions quickly and efficiently,” added Andrew Coren, Senior Vice President at Starwood Capital. “These portfolios provide substantial and defensive in-place cash yields, illustrated by stable performance and collections through COVID-19. The affordable housing sector has significant barriers to entry and these acquisitions also possess high growth potential based on demographic trends in these markets.”
Founded in 1991, Starwood Capital Group continues to be led by its Founder, Chairman and CEO Barry Sternlicht, with a core focus on global real estate, energy infrastructure and oil & gas. In addition to leading Starwood, Sternlicht is Senior Advisor of Invitation Homes, the largest publicly listed investor, owner and operator of single-family homes in the U.S.
Starwood has invested in virtually every category of real estate on a global basis, opportunistically shifting asset classes, geographies and positions in the capital stack as it perceives risk/reward dynamics to be evolving. The company is a signatory of the United Nations Principles for Responsible Investment.
