Value-Added Listings on Rise in DC Suburbs

Two more sellers are testing investor appetite for value-added apartment properties in the Northern Virginia suburbs of Washington.

A Dune Real Estate partnership is shopping two complexes, with 601 total apartments, via Jones Lange LaSalle. The properties, in Ashburn and Leesburg, have a combined value of about $110 million.

Meanwhile, Laramar Group is offering a 308-unit complex in Alexandria. Bids are expected to reach about $200,000/unit, or $62 million. Apartment Realty Advisors has the listing.

The rental market in Greater Washington rebounded more quickly than in almost every other area after the downturn, thanks to strong employment growth and a virtual halt in construction. That led to a surge in offerings of relatively new core properties at sub-5% capitalization rates. With that wave now largely past, owners are starting to test whether buyers will step up for slightly older properties that offer higher returns.

One of the few concerns is that a recent increase in construction could temper the marketís sky-high occupancy rates and rents. Marcus & Millichap predicts that 4,700 apartments will come on line this year, almost double last yearís total. And 2,400 of the new units are in Virginiaís suburbs.

With signs that investor demand is strong, several owners have listed value-added plays (see Market Spotlight on this page). One example: Archstone is pitching the 50-year-old Crystal House towers in Arlington as ripe for renovations that would allow it to better compete with newer, better-appointed complexes. The 828-unit property is expected to trade for more than $280 million. The offering includes a nearby parcel ready for the development of 252 apartments.

Investors can bid on either or both of the properties being offered by Dune and its partner, Pantzer Properties, both of New York. The 467-unit Point at River Ridge, in Ashburn, is expected to trade for about $90 million, or, $193,000/unit. The 134-unit Point at Leesburg, in Leesburg, has an estimated value of $20 million, or $150,000/unit. They were among eight suburban Washington properties, with 2,058 total units, that the partnership acquired in early 2011 for $410 million from advisory firm RREEF.

The average occupancy rate at both properties exceeds 95%. At the estimated values, the capitalization rates would be about 6%. But the Dune partnership has started renovating the complexes and has been able to boost rents by nearly 10% on upgraded units. Renovations have been completed on 98 units at the Ashburn property. New roofs, windows and balcony doors have been installed at the Leesburg complex.

Point at River Ridge, which was developed in 1991, is at 20300 River Ridge Terrace. Its units have 1-3 bedrooms. Amenities include a daycare center, tennis courts and a fitness center. Point at Leesburg, which was built in 1986, is at 86 Heritage Way. All units have two bedrooms. Amenities include a playground, a swimming pool and a barbecue area.

Chicago-based Laramar is offering Bennington Crossings, at 441 North Armistead Street. The occupancy rate is just shy of 95%. The garden-style complex, which was built in 1962, has undergone $4.8 million of renovations in the past year. Laramar has upgraded 241 units, or 78% of the total, replacing appliances, countertops and sinks. Rents average $1,416, below the $1,878 average for comparable properties nearby. A buyer could seek to finish renovations and raise rents as leases expire. The units have 1-3 bedrooms. Amenities include a fitness center, an internet cafe and a swimming pool.

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