Sekisui House Selling Washington DC Apartment Complex to Japan REIT for $279M

Japanese developer Sekisui House has agreed to sell a set of four apartment buildings in Washington DC to the company’s sponsored REIT for $279 million.

City Ridge in the US capital is a mixed commercial and residential development with a total of 350 rental housing units across the four buildings included in the deal, Sekisui House REIT said Thursday in a release. The transaction is scheduled to close on 15 November.

The multi-family complex will become just the second asset outside Japan in Sekisui House REIT’s portfolio, following the Tokyo-listed trust’s May acquisition of a Seattle luxury apartment tower from the sponsor for $328 million. Sekisui House, which in April completed its $4.95 billion acquisition of Denver-based MDC Holdings to create the No.5 US homebuilder, is also cultivating a rental residential business in the world’s largest economy.

“By state, Washington DC is said to have the second highest median household income, suggesting economic strength to support high rents,” the REIT’s manager said. “There are no major concerns about the balance between new supply of rental housing and new demand in the Washington DC metropolitan area, because it is expected to generally balance out after 2024, and the vacancy rate is expected to remain in the low 6 percent range.”

Former Fannie Mae Compound

Set in the Cathedral Heights neighbourhood near the National Cathedral in northwest Washington, City Ridge is a redevelopment of the former headquarters for Fannie Mae, the government-backed mortgage guarantor.

The four buildings in the transaction are the eight-storey Botanica, the nine-storey Coterie and two eight-storey blocks known as The Branches. Construction was completed in December 2022 and January 2023, with the buildings comprising 330,247 square feet (30,681 square metres) of leasable area.

The apartments were 91.1 percent occupied as of July at a monthly rent averaging $1,253, a relative bargain to the $2,199 average throughout the Washington metro area, according to the manager. Sponsor Sekisui House will provide a three-year minimum rent guarantee of $1,566, starting from completion of the acquisition.

The $3.7 billion trust will finance the acquisition with borrowing and its own funds, including proceeds from last year’s JPY 70 billion ($530 million) sale of the Gotenyama SH Building in Tokyo’s Shinagawa ward. The manager anticipates a 3.6 percent dividend yield on the investment.

American Dreams

Sekisui House is one of several Japanese developers expanding their US holdings. In January, Daiwa House Group announced a deal to acquire single-family homebuilder The Jones Company of Tennessee, coming on the heels of the Osaka-based firm’s purchase of California-based detached housing specialist JP Holdings in October.

Last September, Sumitomo Forestry acquired 90 percent of the equity in Texas-based multi-family developer JPI Group for $158 million. In November, the wood-construction expert said it was teaming up with California-based Fairfield Residential in a $144 million joint venture to develop a 400-unit rental residential building in the suburbs of Washington DC.

America’s residential market has also provided expansion opportunities for Chinese developer Landsea Group, which in January agreed to buy Texas homebuilder Antares Homes for a cash consideration of $185 million plus assumption of responsibility for $47.2 million in debt.