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Equity Residential’s Geographic Expansion

Jennifer Mathews - Author

May 26 2017, Updated 9:07 a.m. ET

Concentrating on urban and highly walkable suburban areas

As a part of its strategy initiated in 2005, Equity Residential (EQR) started to sell off its properties to other REITs located in less-dense regions. EQR’s strategy is intended to position itself in places that are easily accessible to densely populated urban and suburban areas.

In this regard, it has sold out almost 198,000 apartment units that it owned in moderately populated suburban markets. Instead, it has increased its concentration in the urban and highly populated suburban areas where it has acquired nearly 69,000 apartment units. The company has also initiated construction of $5.7 billion in projects in those areas.

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EQR sold out 72 operating properties consisting of 23,262 apartment units in five markets for ~$5.4 billion to Starwood Capital Group. The sale of these properties to Starwood, along with several other dispositions that occurred in 2016, has resulted in the company’s exit from the South Florida, Denver, and New England markets. These initiatives are in line with its strategy of transforming its portfolio according to its long-term goals.

Equity Residential’s strategy to concentrate on its six coastal markets of New York, Southern California, Boston, Seattle, San Francisco, and Washington, D.C., appears to be a successful strategy for the company. These markets have high costs of home ownership, implying that people could be inclined toward renting an apartment in these regions.

Further, these markets have significant barriers to entry by competitors, as there is a constraint in terms of land availability. On the other hand, these markets offer substantial job growth and attractive residential infrastructure.

Other major players in the apartment industry like AvalonBay Communities (AVB), Essex Property Trust (ESS), and UDR (UDR) are focusing their development projects in major metropolitan markets in the US. Equity Residential forms ~2.9% of the Vanguard REIT ETF (VNQ).

In the next article, we’ll explore whether EQR maximizes returns to its shareholders.


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