08/10/2012 | By Allen Kenney
Associated Estates Realty Corp. (NYSE: AEC) recently made a dramatic move to expand its portfolio from the Midwest into the Southern California market. Jeff Friedman, president, CEO and chairman of the multifamily REIT, discussed the "high-profile deal" during a REIT.com video interview filmed in New York during REITWeek 2012: NAREIT's Investor Forum.
The company acquired the historic Desmond's Tower at 5500 Wilshire Boulevard. It's comprised of 2.21 acres in which Associated Estate plans to build up to 175 apartments.
"We've talked about our desire to grow in Southern California, and the acquisition of the property on Wilshire Boulevard as the beginning of our setting our stakes, so to speak, on the West Coast" Friedman said. "So we, in a stealth kind of way, snuck into that market and bought a great property."
He said that the off-market transaction was negotiated directly with the owner of the property and the person who controlled the property. Friedman compared the deal to a similar one made on an apartment complex in a trendy neighborhood in the Washington area suburb of Bethesda, Md.
Friedman said the Associated Estates is taking a long-term perspective on the move into California.
"It's a market that takes quite a bit of time to establish a presence, but we're patient in terms of our investing approach and we think it's a great way to begin," he said.
Looking at the company's growth strategy, Friedman said Associated Estate's transaction activity is primarily a "submarket story."
"Although there are lots of interest in apartments and potentially lots of transaction activity, when you narrow that down to the submarkets where we have an interest in, there really isn't that much supply," he said. "So it's very competitive for each property."
In conjunction with the company's focus on submarkets, Associated Estates recently announced that it is expanding in the Raleigh-Durham area of North Carolina. In June, the company acquired The Apartments at the Arboretum, which was built as a condominium development and converted to rental apartments in the Raleigh suburb of Cary, N.C.
Friedman mentioned the possibility of another off -market transaction in the Raleigh-Durham market.
"So we would expect growing in these off-market transactions to increase for Associate Estates. That really gives a lot of credit to the team that we have and the boots we have on the ground in each of these submarkets," said Friedman.