Redevelopment for higher returns
Apartment Investment & Management Company (or AIMCO) (AIV) invests in the redevelopment of certain apartment communities in superior locations. It does this when the investment is expected to yield higher risk-adjusted returns compared to existing apartments or in excess of the cost of equity issued to fund the equity component of the redevelopments.
Other major apartment REITs such as Equity Residential (EQR), Essex Property Trust (ESS), and AvalonBay Communities (AVB) are also active in property redevelopment projects. The S&P 500 Equal Weight ETF (RSP) invests 0.21% of its portfolio in AIMCO (AIV).
AIMCO has undertaken a number of redevelopment projects in the past. These include partial renovation of buildings or exteriors, significant renovation of apartment homes upon lease expiration, and complete renovation of an entire building or community. In 2014, AIMCO’s redevelopment projects included 2,599 apartment units compared to 2,287 units in 2013.
Substantial redevelopment in 2014
In 2014, AIMCO completed two redevelopment projects at Pacific Bay Vistas in San Bruno, California, and The Palazzo Communities in Park La Brea, California. Construction was also nearing completion at its two largest redevelopment projects at Lincoln Place in Venice, California, and Preserve at Marin in Corte Madera, California.
AIMCO also completed the first phase of the redevelopment of The Sterling in Center City, Philadelphia, and a multi-phase capital project at Park Towne Place in Philadelphia, Pennsylvania, in 2014.
AIMCO has also undertaken ground-up development, either directly in connection with the redevelopment of an existing apartment community or at a new location with a third-party development partner with expertise in the local market. In 2013, AIMCO initiated the development of One Canal Apartment Homes in Boston, Massachusetts, with an estimated investment of $310 million to construct 310 luxury apartment homes and approximately 22,000 square feet of commercial space.
In the next article, we’ll take a look at AIMCO’s strategy.