UDR, Inc. (UDR), a leading multifamily real estate investment trust (REIT), has recently acquired ‘Columbus Square’ – a luxury apartment community comprising 5 high-rise buildings in New York City, through its joint venture with MetLife, Inc. (MET). Both UDR and MetLife have a 50% interest each in the joint venture dubbed UDR/MetLife II.
The transaction, worth $630 million, is arguably the biggest of its kind in Manhattan in the last 4-year period. The property was purchased from the Chetrit Group and Stellar Management, which had earlier bought it for $122 million in 2000.
The acquisition has enabled UDR to augment its portfolio in New York – one of the premium multifamily apartment markets in the country. According to a report by Reis Inc. (REIS), Manhattan commands the highest average monthly rents in the U.S. at $2,876. In addition, the fourth-quarter vacancy rate of the region at 2.4% was well below the national vacancy rate of 5.2%.
UDR has spent more than $1 billion in 2011 alone for acquiring prized real estate assets in Manhattan that even included ‘95 Wall Street’, which once housed the corporate headquarters of JP Morgan Chase & Co. (JPM). With the current purchase, UDR has over 2,600 apartment homes in New York City.
UDR is among the best-positioned apartment REITs in the U.S., with the majority of its portfolio located in California, Florida and on the Atlantic Coast. These are areas where housing costs have soared in the past few years, and despite the drop in home values, the rental-versus-ownership spread still remains high. The housing meltdown will continue to help apartment REITs like UDR and we expect this sector to remain comparatively stable in the coming quarters.
Furthermore, UDR has a geographic diversification that increases investment opportunity and decreases the risk associated with cyclical local real estate markets and economies, thereby increasing the stability and predictability of earnings.
UDR has also continuously upgraded the overall quality of its portfolio by selling assets in smaller market, older properties and replacing them with newer assets in better long-term markets. This provides an upside potential for the company.
We maintain our ‘Neutral’ recommendation on UDR, which currently retains a Zacks #3 Rank that translates into a short-term ‘Hold’ rating.
JPMORGAN CHASE (JPM): Free Stock Analysis Report
METLIFE INC (MET): Free Stock Analysis Report
UDR INC (UDR): Free Stock Analysis Report
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