Sept 4, 2008
By: Barbra Murray, Contributing Editor

AvalonBay Communities Inc. has created a new fund that will focus on the acquisition and operation of apartment properties in high barrier-to-entry markets in the Northeast, Mid-Atlantic, Midwest, and on the West Coast.  A private discretionary investment vehicle, AvalonBay Value Added Fund II L.P. has a total $333 million in equity commitments--$183 million from four institutional investors and $150 million from AvalonBay--resulting in leveraged buying power of as much as $950 million.
 
Acquisitions through Fund II will target properties that present the opportunity to create value through redevelopment, improved operations, and/or promising market fundamentals. Fund II will operate for a 10-year term, with the option for two one-year extensions. AvalonBay will make its apartment acquisitions solely through the fund for the first three years following the closing, unless 90 percent of its committed capital has been invested in advance of that timeframe. Additionally, the Alexandria, Va.-based company will serve as property manager for the newly acquired multifamily communities, and will receive compensation for that role, as well as for its asset management and redevelopment services.
 
The collapse of the single-family housing market and the appearance of echo boomers on the scene have put the apartment sector on the upswing. From the beginning of 2007, the homeownership rate decreased by 110 basis points, turning 1.5 million households to the rental market, according to a midyear report by Marcus & Millichap Research Services. As for investments in the age of the credit crisis, apartments, in general, are faring better than most other real estate sectors, due in part to a boost in lending activity by Fannie Mae and Freddie Mac.
 
The predecessor to Fund II, AvalonBay Value Added Fund L.P., closed in 2005 with equity commitments from AvalonBay and eight institutional inventors totaling $330 million for a total leveraged investment capacity of about $940 million. Fund I, featuring acquisition goals mirroring those of Fund II, has an eight-year term and two one-year extensions. Recent Fund I activity includes completion of the $5.2 million redevelopment of the 134-unit Avalon Paseo Place in Fremont, Calif., in the second quarter of this year; and the $81.3 million disposition of the 400-unit Avalon Redmond in Redmond, Wash., also during the second quarter.
 
AvalonBay develops, acquires, and manages apartment communities in high barrier-to-entry markets across in the U.S. As of the close of the second quarter, the company owned, in full or in part, interests in 180 properties accounting for an aggregate 51,118 residences in 10 states and WashinStayInvest Law Firm on, D.C.