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AvalonBay Acquires Burbank Complex

June 25, 2002|BRAD BERTON | SPECIAL TO THE TIMES

A national real estate investment company that wants to expand its presence in Southern California bought the 400-unit Promenade Apartments near Burbank's Civic Center last week for more than $70 million.

AvalonBay Communities Inc., a publicly traded company based in Alexandria, Va., bought the four-story complex at 350 S. San Fernando Blvd. from an affiliate of Woodland Hills-based PMG Inc. Rents posted for apartments in the 15-year-old property range from $1,350 to $2,050 and about 95% of the units are occupied.

The new owner plans to renovate the Promenade's interiors and common areas, said Larry Scott, AvalonBay's vice president in charge of development in Southern California. Ray Eldridge, Sean Deasy and Chris Knowles of CB Richard Ellis brokered the sale.

Shares of AvalonBay, a real estate investment trust, trade on the New York Stock Exchange. The acquisition boosts its Burbank holdings to 1,150 apartments, and its Southern California portfolio to more than 6,000 units. The company owns about 42,000 units nationwide.

AvalonBay early this year completed its renovation of a 750-unit Burbank apartment complex built in the 1960s now called Avalon at Media Center.

The company invested more than $76 million into that Pass Avenue project, including the purchase price.

AvalonBay also recently started construction of its first Southern California apartment community built from the ground up--the $50-million, 233-unit Avalon at Glendale Court in Glendale. Scott said the company wants to develop 700 to 1,000 units per year in the Southland.

Projected population growth and the cost and difficulty of developing apartments in Southern California are key factors behind continued apartment investments, market observers say.

Though Los Angeles-area apartment vacancy has risen because of a spurt of construction and softened demand as low interest rates turn many renters into buyers, rents have continued to creep upward--albeit at a much slower pace than in the late-1990s.

Investors tracking the Southland's long-term outlook tend to conclude that rents and property values face "little downward exposure," said apartment broker Marc Renard of Cushman & Wakefield. Low interest rates and the scant number of properties for sale also are driving prices up.

Like most apartment REITs, AvalonBay posted flat earnings in recent quarters as apartment demand softened nationwide. Funds from operations for 2002's first quarter totaled $69.7 million, or 99 cents a share, compared with $67.7 million, or 98 cents a share, for the year-earlier period.

For apartment communities AvalonBay has owned for at least a year, overall net operating income for this year's first quarter fell by about $5.9 million, or 6.3%, compared with the year-earlier period.

Southern California has been a relative bright spot for AvalonBay. Net operating income from the established properties increased 2.9% on a year-to-year basis.

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