BRE to Buy TC Residential’s West Coast Assets
San Francisco-based BRE Properties Inc. said Tuesday that it agreed to buy the West Coast assets and operations of Trammell Crow Residential for $600 million in cash, securities and assumed debt, making it one of the largest apartment owners in the West.
The move would boost BRE’s apartment portfolio by 55% to 21,021 units in 82 properties stretching from Washington to New Mexico.
BRE also will gain closely held Trammell Crow’s development and property management operations for 12,000 apartments owned by others.
The purchase marks the latest large transaction by a real estate investment trust, or REIT. REITS have been looking to expand their portfolios quickly to take advantage of the premium investors are paying for fast-growing, diversified companies.
The fastest-growing REITs are finding they can spread their costs over a larger number of properties, becoming more efficient.
“What we eventually will have is a bifurcation in this industry, with the market dominated by very large, low-cost producers and small niche operators,” said Chris Hartung, an analyst at Montgomery Securities in San Francisco. “This brings BRE to that next level.”
The purchase also gives BRE the capability to develop apartments now that a flood of investors have entered the market, bidding up property prices and cutting returns.
BRE President and Chief Executive Frank McDowell said the company plans to use Trammell Crow’s development expertise to spend about $200 million a year building 2,500 apartment units.
“This acquisition creates for us a dominant presence in our markets,” McDowell said. “It’s clearly becoming a business of the haves and have-nots.”
BRE’s shares rose 63 cents to close at $28.25 after touching an all-time high of $28.56 in New York Stock Exchange trading.
The company said the transaction, which was approved by its board, is expected to be completed in November. It will make BRE one of the five largest REITs in the U.S.
Under the terms of the agreement, BRE will issue between $150 million and $220 million worth of stock and other securities. Depending on the amount of stock issued, the cash portion of the purchase will range from $133 million to $205 million.
Officials at Atlanta-based Trammell Crow Residential said it has no plans to sell the other 30,000 apartment units it owns in partnerships with regional developers.
With the acquisition, BRE will enter markets in Denver, Salt Lake City and Albuquerque. It already operates in California, Washington, Oregon, Arizona and Nevada.
Apartment markets along the West Coast have been some of the strongest in the U.S. in the past year. Strong job growth and little new supply kept vacancy rates low and allowed landlords to raise rents 10% or more in some areas.
