Apartment Investment and Management Company (AIV - Free Report) , better known as Aimco, recently announced the ground breaking for a new $87-million development in Aurora, CO. The company will add 253 upscale apartment homes to this site where the Fitzsimons Army Medical Center was previously located.
Scheduled for completion in the fall of 2020, this development will offer 7,000 square feet of indoor and outdoor amenity spaces and onsite retail to its residents. They will enjoy easy access to job centers like the University of Colorado Anschutz Medical Campus, the Fitzsimons Innovation Community of bioscience companies, Children's Hospital and the new Veteran Affairs Hospital.
Moreover, being located near to public transportation services, including Interstate 225 and the 14-mile, multi-use Sandy Creek Greenway, this residential property will likely enjoy decent demand for its apartment units.
In fact, Aimco already has a solid presence in the region and the latest development is located near the company’s 600-apartment home community — 21 Fitzsimons Apartment Homes — which was acquired by the company in 2014. Together with 21 Fitzsimons, Aimco enjoys ownership and operation of eight apartment communities in the Denver / Boulder region, with 2,151 apartment homes.
Notably, solid job growth in recent months indicates more household formations and raises expectations of a revival of the U.S. residential real estate market fundamentals. Nonetheless, the struggle to lure renters will continue in the upcoming quarters as well, when much of new supply may come on course. Moreover, the upcoming colder months essentially mark a seasonally slow apartment leasing period.
Therefore, landlords’ ability to command more rents will most likely remain stunted and concessions might be rampant in the near term. This, again, is likely to affect performance of residential REIT stocks like Aimco, American Homes 4 Rent (AMH - Free Report) , AvalonBay Communities, Inc. (AVB - Free Report) and Equity Residential (EQR - Free Report) .
Nevertheless, Aimco has a solid portfolio, diversified in terms of geography and price point, which helps diversify the company’s exposure to economic downturns and competitive new building supply. The company is making immense efforts to improve its portfolio mix through property sales and reinvesting the proceeds in acquisitions of select apartment homes, with the projected free cash-flow internal rates of return being greater than expected from the communities being sold.
Also, it is reinvesting the proceeds in measures like capital enhancements, redevelopments and occasional developments. The company also completed its exit from the affordable housing line of business and has reduced its leverage. However, dilutive impact on earnings from asset dispositions, and adverse impact on rent growth and new-lease pricing from elevated supply in various markets remain concerns. Hike in interest rate adds to its woes.
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