MIAMI, FL - Starwood Real Estate Income Trust, a non-traded REIT managed by Starwood REIT Advisors, L.L.C., a subsidiary of Starwood Capital Group, announced the acquisition of two affordable housing portfolios with a combined 4,618 units located in 32 communities. With this acquisition, controlled affiliates of Starwood Capital, which include SREIT and other Starwood Capital-sponsored investment vehicles, own or are under contract to purchase more than 34,000 affordable housing units across the country, making the Starwood entities collectively a top three owner of such units in the United States. Terms of the transactions were not disclosed.
The acquired portfolios are 99% occupied and offer affordable options for renters in attractive Mid Atlantic and Sun Belt markets. The portfolio's high-quality garden-style residential units feature top-tier amenities, including swimming pools, clubhouses, playgrounds, fitness centers and laundry facilities.
Washington, D.C. and Jacksonville, which together make up 57% of the acquired portfolios, have each experienced population growth that is double that of the United States over the past ten years. Washington, D.C. has a stable government and military employment base, while also benefiting from the recent influx of high paying tech (e.g., Amazon HQ2) and finance jobs. Jacksonville has experienced robust employment growth over the past five years, with a 16% increase in employment vs. a national average of 9% over that same time period. Looking forward, both markets are projected to significantly outpace the U.S. average in population growth. 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%, which is 1.2% 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 Mark Keatley, Managing Director at Starwood Capital. "These investments have good downside protection provided by highly occupied properties with in-place rents that are 26% 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."
As of September 30, 2020, the SREIT portfolio has a total asset value of $4.3 billion across 106 properties.