What the AvalonBay, Equity Residential megamerger means for the apartment industry and rents
AvalonBay and Equity Residential have merged, creating a larger entity in the apartment industry. This consolidation is seen as a strategic move to enhance scale and efficiency amid a challenging market. Analysts suggest that while the merger may not directly impact rents, it could signal further consolidation in the sector.
- ▪The merger aims to create a company that is too large to be easily acquired.
- ▪Analysts believe the apartment sector is ripe for further consolidation due to an oversupply of REITs.
- ▪Despite the merger, the combined company will still have a small market share, less than 3%.
- ▪Regulatory scrutiny may arise due to the size of the deal and concerns about housing affordability.
- ▪The combined company will need to improve earnings growth to demonstrate that larger size leads to greater profitability.
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"I think this might be a defense against privatization. By putting themselves together, they're almost too big to get bought," Swaringen said. He also noted the high cost of building technology, which residential tenants now demand – from online leasing to credit checking to delivering bandwidth and Wi-Fi. Consolidating could reduce those costs."Strategically, the rationale is straightforward: scale, liquidity, balance sheet efficiency and overhead synergies," said David Auerbach, chief investment officer at Hoya Capital Real Estate. Auerbach said he thinks this could be the first of more megadeals in the space. "We have WAY too many Apartment REITs out there, and it's a sector ripe for consolidation," he wrote in emailed comments to CNBC.
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