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One Big Repositioning

APARTMENT FINANCE TODAY • November/December 2008

Equity in the driver’s seat as immense garden community gets a face-lift.

BY JERRY ASCIERTO

When Aimco put the Springhill Lake Apartments in Greenbelt, Md., up for sale in January, bidding was intense.

At 2,877 units, Springhill Lake is the largest garden-style apartment community in the Mid-Atlantic region. The property represented a massive valueadded opportunity at a time when many developers were turning their focus to repositioning deals.

Empire American Holdings, which acquired the property for $275 million in June, was able to trump 20 other bids. “Empire beat out a lot of very good qualifi ed buyers by moving very quickly and putting hard money down, a substantial nonrefundable deposit of $5 million at contract signing,” says Scott Melnick, a managing principal at Transwestern’s Institutional Multifamily Group.

Usually, buyers request 60 days of due diligence and can get their deposit back after 30 days if the due diligence finds anything negative.

For the last five years, Aimco planned to demolish much of Springhill Lake and replace it with higher-density housing, mostly for-sale units. Aimco secured zoning approval to double the density of the 155-acre community to 5,800 residential units in January 2006. But the deep slowdown of condo sales since then gave the company pause.

“While we liked the significant redevelopment potential at Springhill Lake, the sales price was compelling,” says David Robertson, president and CEO of Aimco Capital.

Since Aimco planned on demolishing much of the community, it didn’t invest in upgrades, leaving many value-added possibilities, like new kitchens and bathrooms, for the next owner. Springhill Lake, built in 1969, was 96 percent occupied at the time of sale.

“We saw a large economy of scale, good occupancy, and that there is a lot to improve and upgrade—we bought this because we saw what we could accomplish,” says Abe Miller, vice president of acquisitions of Empire.

Location was a prime draw, as the community is situated in Greenbelt, about a 20-minute drive northeast of Washington, D.C. Now re-branded Empirian Village, the community is in many ways a transit-oriented development, within easy walking distance to the Greenbelt Metro and MARC rail systems. The development also contains bus stops on its campus, is adjacent to the Capital Beltway (I-495), and is a mere two-minute walk to a large shopping center.

Additionally, many large employers are nearby, including the University of Maryland, NASA Goddard Space Flight Center, and the National Agricultural Research Center. The Food and Drug Administration is building new headquarters in the area, scheduled for completion in 2012.

Empire is modernizing the community by installing gabled roofs, repainting each building, and upgrading the lobby and leasing offi ce. It also will upgrade the individual units at turnover, installing new kitchens and bathrooms. Additionally, it is developing a 12,000-square-foot amenities center, complete with a fi tness center, a resident lounge, children’s playrooms, a business center, and laundry facilities.

Empire plans to pump about $30 million into Springhill Lake. While repositioning a 2,877-unit community is a massive undertaking, it represents a large opportunity: Empire believes monthly rents will be lifted between $100 and $200 per unit post-repositioning. The company sees opportunities for operational efficiencies as well, and plans to submeter the entire complex for utilities.

The sale marked a big expansion for Empire in the Washington, D.C., area and continued its aggressive buying spree. It purchased a 289- community portfolio from Equity Residential for nearly $1.1 billion in 2006 and as a result owned about 200 local units—or less than 10 percent of the units at Springhill Lake.