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Don't believe everything that you read over and over again

Eric J Bokota

Apartment REIT investors have heard two refrains throughout 2020: 1) California is dead (2) Urban areas are dead.

To read the news, the death of CA seems a given -after all we lost not only Joe Rogan but Elon Musk and Oracle.  

Today after hours we have a sizable counterfactual.  EQR announced the sale of Vantage Point, a 40 story tower in downtown San Diego, California. The sales price is $312.5 million which works out to $460k per unit or a 4.1% cap rate.  

Equity Residential Sells Large San Diego Asset

Interesting quote from press release: “We are pleased to execute on the opportunity to sell this asset at a price that we had ascribed to the property pre-pandemic,” said Mark J. Parrell, Equity Residential’s President and CEO.

This is yet another data point showing that EQR (along with nearly all of apartment REITs) is meaningfully undervalued.  

It was also reported that another California asset traded hands for a fancy price - this one near Sacremento ($347k per unit):

Davlyn Investments Pays $95M for Sacramento-Area Property
The 273-unit Class A community last traded almost a decade ago, when it commanded $40.5 million.

In summary:

-California is not dead

-Cities are not dead

-The apartment REITs are significantly undervalued - particularly those with meaningful exposure to California.  The Essex Property Trust (ESS) has the most CA exposure - it is my favorite of the apartment REITs - I estimate its fair value to be $350+.

This is not investment advice. Eric Bokota owns ESS and EQR.  Do your own work.