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Posted on Tue, Oct 26, 2010 : 6:01 a.m.

Willowtree Apartments in Ann Arbor listed for sale by national student housing investor

By Paula Gardner


Willowtree Apartments in Ann Arbor.

Hendrick & Partners

How hot are student housing complexes in Ann Arbor right now?

Two new high-rise development projects are proceeding near Central Campus, and the market is absorbing space in three towers opened in the last 14 months.

Now one of the nation’s largest student-housing operators is testing the market by listing Willowtree Apartments for sale.

The listing was unveiled Oct. 18, and broker Kevin Larimer of Farmington Hills-based Hendricks & Partners said offers will be accepted until Nov. 18.

Response to the listing is “very strong,” Larimer said. “That’s true of student housing on a national level. Certainly at a university like the University of Michigan, that’s even more so.”

American Campus Communities is listing the property, which is located off of Plymouth Road, about 1/2 mile west of Huron Parkway and just north of the University of Michigan’s North Campus.

The publicly owned Austin, Texas-based company folded the property into its overall disposition plan this year to generate capital and build value for shareholders, said William Talbot, senior vice president of investments. It sells 5-10 properties per year.

“Part of the reason is to capitalize on the strength of Ann Arbor,” Talbot said. “It’s a very desirable place for people to invest.”

The 26.6-acre property last was sold in 2005 for $22.5 million. It moved into the American Campus Communities portfolio in 2008, when the student housing REIT acquired GMH Communities Trust.

That deal was a $1.4 billion transaction that expanded ACC’s portfolio to 88 student housing properties with 54,300 beds, a 90-percent expansion.

Since then, the $2.1 billion company has grown to 47,202 beds and quarterly revenue of $76 million, according to 2nd quarter data. At the same time, overall occupancy was 96 percent in fall 2009.

At Willowtree, the occupancy rate for fall 2009 - when the new Ann Arbor Campus Housing property called The Courtyards opened at Broadway and Plymouth roads - was 83.9 percent, and rental rates were climbing by 0.7 percent.

By this school year, according to ACC reports, the occupancy rate hit 99.5 percent on a projected rental rate decrease of 4.6 percent.

The property totals 473 apartments, with 851 beds in either one- or two-bedroom floorplans. At just under 400,000 square feet in the mix of three-story buildings and one five-story tower, the average market rate per bed was $475 in 2009.

That price compares to $680 per bed at The Courtyard, $862 at 4Eleven Lofts and $1,119 at Zaragon Place.

Despite the leasing success this year, Talbot said the property doesn’t truly fit into the ACC portfolio: Its leases are by the apartment and not “by the bed,” part of the growing movement in student rentals among the major national players.

The timing of the sale also was determined by financing: Exisiting financing will mature within a year, Talbot said.

That should make it attractive to an investor, he said, particularly since the financing markets for student housing complexes are returning, allowing loans with 25-30 percent equity.

The purchase price will be set by the buyers, Talbot said.

The assessed value of the property is $10,732,000, giving it an estimated market vale of $21.4 million and generating $508,000 in property taxes.

ACC still owns several properties in Michigan, including Peninsular Place in Ypsilanti, just north of the Eastern Michigan University campus. At that complex, fall 2009 occupancy was 93.9 percent.

Meanwhile, American Campus Communities continues to grow: The company closed a $200 million deal in September to take full ownership of 14 properties, representing 8,534 beds.

The company's stock [NYSE: ACC] was selling for $32.74 per share today, close to its 52-week high of $33.04. Its market cap was $1.74 billion.

Paula Gardner is Business News Director of Contact her at 734-623-2586 or by email. Sign up for the weekly Business Review newsletter, distributed every Thursday, here.



Tue, Oct 26, 2010 : 9:11 p.m.

@johnnya2 The property was only acquired by the current owner, a national REIT, when it acquired another company and its portfolio in 2008. (BTW - I wonder if the City caught this transfer and uncapped the property taxes.) In 2009, Willowtree suffered with 84% occupancy when Courtyards opened, so they lowered the rent to boost occupancy. I don't think it's logical to say that this company has made its money on the property and is now cashing in. It's far more likely that they have analyzed the performance of properties in the portfolio acquired in 2008, identified the losers, and are now unloading them to boost their cash supply, improve cash flow, and maybe acquire a new winner or two. In terms of the rent per unit versus rent per bed, this is a management decision that they could choose to change without having to sell. Simply start renting per bed. Personally, I'm not a fan of renting per bed. It creates rooming houses for groups of strangers instead of unified households where the individual members feel vested in their homes and neighborhoods. The Ann Arbor zoning and housing codes both emphasize that dwelling units are intended to be occupied by groups of people that operate as single entities (formerly known as families). How we ever went down this individual lease path is beyond me. The Willowtree rents may or may not be in line with non-student areas in the city, but remember, this REIT is in the student housing business where they expect higher returns on investment than what non-student housing can offer them. In this case, they have made a business decision that there is not sufficient student demand in Ann Arbor for Willowtree to generate the cash flows they desire, so they are dumping it. This ought to be a very desirable property with high student demand considering it is so close to North Campus, shopping, restaurants, and public transportation. I think the low rents and the decision to sell both point to the logical conclusion that the student housing market in Ann Arbor has been saturated.


Tue, Oct 26, 2010 : 7:08 p.m.

@townie Or maybe due to the financing situation that appears to be happening in a year, they decided that finding out where the market is, is a good business plan. Putting something for sale does not mean they are getting out of the market. The proof is in the way these are marketed. They are sold by the apartment. All the others mentioned are sold by the bed. Typically a family will not sign a lease "by the bed". Maybe a few recent graduates or single professionals who don;t mind living with others, but $950 for a two bedroom ($475 per bed) is pretty much market rate for REGULAR Ann Arbor apartments. Look at any of the places around Briarwood, and that is right on par. Students typically are charged a premium in real estate, but they realize to collect that premium there would need to be a lot of added upgrades to compete with 411 Lofts, Courtyard, and Zaragon. I would bet if you looked at all three, none are profitable. Because somebody sells something, does not mean it is a bad investment, it just means they have made their money and want to cash in.


Tue, Oct 26, 2010 : 4:14 p.m.

@d_a2: Although some of their properties may be cheap enough for students, McKinley does not and will not market their residential rental properties to students.


Tue, Oct 26, 2010 : 2:19 p.m.

money says mckinley buys it up


Tue, Oct 26, 2010 : 11:53 a.m.

This sale is a clear indication that the student housing market in Ann Arbor is, or already has, achieved saturation. Here we have a national student housing investment company that has decided that this property, right across the street from North Campus, is not providing the level of return they require in relation to their other holdings. In order to boost their stock price, they are unloading this under-performer. The high occupancy rate is clearly the result of discounted rents offered to make the property appear full and attractive to buyers. However, with 600 brand new furnished units across the street, where UM buses drop students practically at their door, Courtyards has clearly had a devastating impact on Willowtree. Mary Sue Coleman stated in a recent Michigan Daily article that she intends to start making efforts to better control the size of the student body--perhaps even shrinking it some as was done in the 80's, in order to provide a better overall experience for students who are paying higher and higher tuition. The Willowtree owners are clearly knowledgeable about the student housing market and, while they are doing their best to spin this as a great opportunity for a buyer, they are getting out of Ann Arbor while the getting is good. As stated above, perhaps there is an opportunity here to offer more affordable housing for couples, families and working singles, but I think the message is clear: the student housing market in Ann Arbor has been tapped, with two more big buildings on the way.

herman gardens

Tue, Oct 26, 2010 : 10:56 a.m.

The story describes a company generating revenue of almost 28% of stock market value, which strikes me as astounding, especially given that shares are trading close to the high for the year. What does the company believe about the Ann Arbor market that makes the sale of property here likely to "build value for shareholders"?


Tue, Oct 26, 2010 : 9:05 a.m.

I wonder if this figure will go down once the place sells? "generating $508,000 in property taxes"


Tue, Oct 26, 2010 : 8:39 a.m.

@common_cents: most of the folks living ta Willow Tree are U-M students, but there are a few who have graduated and work, but have continued to stay there, plus a small number of young professionals, who also live there. E.G: have a friend who works for Ford, who chooses to live in A2, due to what our city has to offer culturally, etc.


Tue, Oct 26, 2010 : 8:25 a.m.

Is this property exclusively student housing? It seems that at one time it had a mix of families and students.