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AvalonBay's New York City Apartment Profits May Head to Denver, South Florida

Apartment Giant, Expected to Take Home $460 Million in Portfolio Sale to Invesco, Plans to Reinvest in Stable Markets
October 9, 2018
Invesco Real Estate plans to buy an 80 percent stake in five apartment buildings owned by AvalonBay, including the Avalon Morningside in Manhattan.

Real estate investment trust AvalonBay is considering a shift in its latest focus from apartments in New York City to Denver and southeast Florida, areas where the company expects steady job growth, consistently high occupancy rates and other solid real estate investment fundamentals to provide stability for any future economic slowdown.

The net proceeds from AvalonBay’s sale of 80 percent interest in five Manhattan towers to Atlanta's Invesco Real Estate should be about $460 million, according to the company. That cash is likely to help the Arlington, Virginia, business expand its new presence in hot markets, which the company has said include Denver and southeast Florida.

AvalonBay has indicated its intention in the past year to move into those markets. Traditionally, the company has focused on tried-and-true, recession-resistant markets in New England, greater New York, the Mid-Atlantic and coastal western cities like Seattle. The publicly traded REIT builds and owns luxury properties that tend to stay full and are less vulnerable to ups-and-downs in the economy.

The addition of Denver and southeast Florida to AvalonBay's investment strategy marks a vote of confidence in the long-term prospects of those markets from a big investor who rarely bets wrong. It has already acquired properties in both Denver and Florida in the past year, including its purchase of the Lodge Denver West last September for $76.75 million.

"We’re looking not only for acquisitions [of existing properties] in those markets but also development deals," said AvalonBay spokesman Jason Reilley on Monday.

AvalonBay said it's selling stakes in the 295-unit Avalon Morningside Park at 1 Morningside Dr.; the 206-unit Avalon Bowery Place I at 11 E. First St. and 90-unit Avalon Bowery Place II at 22 E. First St. in the East Village; the 305-unit Avalon West Chelsea at 282 11th Ave.; and the 405-unit AVA High Line at 525 W. 28th St.. AvalonBay developed all five in the last decade or so, and the Invesco deal values them at a combined $760 million, or about $584,000 per unit.

Invesco will form a new joint venture with AvalonBay, which will maintain a 20 percent interest in the 1,301-unit package.

Denver has emerged in recent years as a rival to technology-dominated cities like Seattle and San Francisco. Millennials have flocked there, according to CoStar data, as tech firms and media companies have joined energy and government employers in the Mile High City.

Quality of life surveys routinely put the Denver market at the top of the list for young people in the United States.

The number of 25-34-year-olds moving to Denver has grown every year since 2016 at four times the national average. That cohort generally rents, and developers, like AvalonBay’s rivals, have responded with new, fancy developments.

Southeast Florida has also outpaced the national average in a few key factors related to apartments. In the West Palm Beach market, the service and leisure industries have expanded, but the biggest employers include a diverse array of companies such as aerospace, government services, and security manufacturing. That’s keeping demand for rentals strong.

John Doherty, Multifamily Reporter  CoStar Group   
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