Leading multifamily owner Equity Residential and luxury home builder Toll Brothers, through its Toll Brothers Apartment Living division, have established a strategic partnership to develop new rental communities in key U.S. metro markets.
The partnership initially will focus on acquiring and developing sites for multifamily communities in markets where both Equity Residential and Toll Brothers have a significant or growing presence—Atlanta; Austin, Texas; Boston; Denver; San Diego and Orange County; and Seattle as well as Dallas-Fort Worth, where Equity Residential recently has reentered.
Both companies are bringing their strengths to the partnership. Equity Residential owns or has investments in 306 properties with 79,117 apartment units as of July 26. It ranks as the National Multifamily Housing Council’s fifth top apartment owner and 14th top manager for 2021. Toll Brothers ranks No. 11 on the 2021 Builder 100, and its Apartment Living division has developed more than 7,900 units, has more than 5,300 units under management, and has a pipeline of more than 14,800 units.
Over the next three years, Equity Residential will invest 75% of the equity for each project, with Toll Brothers investing the remainder. According to the firms, it is expected that each project will be financed with approximately 60% leverage, and Equity Residential will have the option to acquire each community upon stabilization. The firms are targeting an initial minimum co-investment of approximately $750 million in combined equity, or nearly $1.9 billion capacity with the 60% leverage. The targets could increase if additional opportunities are found.
“We are delighted to be working again with Toll Brothers and their experienced apartment development team, with whom we’ve had a long and successful business relationship,” said Mark J. Parrell, president and CEO of Equity Residential. “This venture will marry Equity Residential’s market knowledge and balance sheet strength with Toll Brothers’ existing deep development capability to produce high-quality apartment properties in our expansion markets and predominantly suburban locations in our existing markets that appeal to our affluent renter demographic. We expect this venture to create significant value for our shareholders, to accelerate our diversification efforts, and to allow us to efficiently scale up our development efforts.”
Three properties controlled by Toll Brothers, with a total anticipated development cost of approximately $242 million, are expected to jump-start the venture. The home builder, which has agreed to develop apartment projects exclusively with Equity Residential in the designated metro markets, will act as the managing member of each project and will oversee approvals, design, and construction. It will receive development, construction management, and financing fees as well as a promoted interest upon the sale of each property. Equity Residential will receive fees for property management, leasing and marketing services, as well as construction oversight.
“We are thrilled to join with Equity Residential in this exciting partnership that offers tremendous benefit to both our organizations,” said Douglas C. Yearley Jr., chairman and CEO of Toll Brothers. “This venture will increase the capital efficiency of our Toll Brothers Apartment Living platform, allowing us to develop more apartments with less capital. Having Equity Residential co-investing with us at initial site acquisition and being the likely purchaser of developed properties at stabilization will enable our Apartment Living business to improve return on equity and to generate a higher and more predictable income stream through consistent and recurring fees and property sales.”
