Commercial Real Estate Heats up on U.S. Coasts

Source: RealEstateJournal

Many multifamily real-estate investment trusts have been ramping up their development pipelines, but increasingly are building in only a handful of U.S. cities along the coasts.

About 96% of the new apartments being built by REITs at the end of the fourth quarter were concentrated along the East and West coasts, according to a Feb. 28 report by Morgan Stanley. That compares with about 87% in the fourth quarter of 2004.

Archstone-Smith Trust, for instance, had about $1.3 billion in apartment projects under construction at the end of the fourth quarter -- more than double the amount it spent on projects under construction three years ago -- with nearly all of it concentrated in a few coastal cities.

Part of Archstone-Smith's strategy is to target areas such as Boston, New York and Southern California, where there is a high cost of homeownership and barriers to competition, such as a shortage of developable land and an often-lengthy permitting process. "It's hard to find those characteristics in a market that isn't coastal," says R. Scot Sellers, chief executive of the Colorado-based REIT.

Bryce Blair, chief executive of Alexandria, Va.-based AvalonBay Communities Inc., says the apartment REIT started expanding its development pipeline about three years ago, when the national apartment market was relatively weak and there was less competition for developable land. At the end of last year, AvalonBay had about $1 billion in apartments under construction -- most of them on the coast.

"It's been a big part of our strategy forever," Mr. Blair says of concentrating on the coasts. "It is becoming more in vogue today."

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