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Avanath Spinoff Plans $100M IPO

Apartment investor Daryl Carter, one of Orange County’s top real estate executives, is in line to set a number of firsts with his latest venture, Aspire Real Estate Investors.

The Irvine-based real estate investment trust, which this month filed to go public via a $100 million initial public offering, will become the first publicly traded REIT to pursue a strategy focused on affordable and workforce multifamily housing.

The company—which initially will have 1,728 rental units to its name in nine complexes, including a pair of properties in Southern California—also expects to qualify as the first publicly traded Opportunity Zone Fund REIT listed on a national securities exchange.

Opportunity Zones, created by Congress in 2017, incentivize long-term private sector investments in low-income, economically distressed communities through tax breaks.

The REIT will also mark the first time that Carter, one of the real estate industry’s most prominent African-American executives, will run a publicly traded company. He’s the founder and Chief Executive at Irvine’s Avanath Capital Management LLC, which as of June counted a 10,560-unit apartment portfolio whose assets are estimated to be worth $2.2 billion.

Aspire is expected to list on the New York Stock Exchange; a ticker symbol has yet to be disclosed.

Major Upgrades

Aspire will be seeded via Carter’s Avanath; the new REIT will pay $260.4 million for the nine properties, or some $150,000 per unit.

A heavy amount of redevelopment is planned for the complexes, which include Seaport Village in Long Beach and Woodside Senior in Ontario.

It plans to boost the unit counts at the complexes from 1,728 to 2,499. Seaport Village’s size will grow from 358 units to 637, while Woodside Senior will go from 144 units to 216.

The “combined estimated total project cost for our initial properties, including initial purchase prices plus development and redevelopment costs, which include capitalized construction loan interest expenses, if any, is approximately $582.4 million,” the REIT said in filings with the Securities and Exchange Commission.

That works out to a price of about $233,000 per unit.

The investment in lower-income areas is a good business strategy, the REIT asserts.

Market-rate assets in Aspire’s target markets “generally trade for capitalization rates in the range of 3.75% to 5%,” it said.

For its redevelopment and development investments, Aspire said it intends to undertake projects which underwrite to approximately 50 to 150 basis points of additional yield on cost upon stabilization, compared to acquisitions of stabilized properties in the same market.

Monthly rent at the nine properties it is buying averaged $1,074 as of last year, according to regulatory filings.

“We believe that the affordable and workforce housing sectors offer attractive risk-adjusted returns, with superior supply and demand dynamics and greater fragmentation of existing ownership than the market-rate segment of the multifamily market,” Aspire said in SEC filings.

In June, Carter told the Business Journal that Avanath’s strategy was not just to invest in the apartments themselves, but the neighborhoods they’re in.

“We are a big proponent of mixed-income housing because people of lower income need to see successful people, and successful people of color, to believe that for themselves,” Carter, a former chairman of the National Multifamily Housing Council, said at the time.

“Avanath’s slogan is ‘lifestyle within reach,’ which is really about the pursuit of the American dream,” said Carter, who could not comment for this story due to quiet-period regulations for the forthcoming IPO.

Big Backers

Aspire counts other notable names besides Carter.

The REIT’s other main backer is San Francisco-based MacFarlane Partners LLC, a frequent partner in Avanath projects.

The two companies are among “the largest African American-owned real estate companies in the U.S.,” according to documents filed with the SEC last week.

MacFarlane’s Chief Executive, Victor MacFarlane, is Aspire’s chairman.

Other board members include Carol Moseley Braun, the first African American woman elected to the U.S. Senate, and a former political science professor at Northwestern University, as well as former NBA player and current Future Foundation Inc. President Shareef Abdur-Rahim.

Morgan Stanley, B. Riley FBR, Wells Fargo Securities, BMO Capital Markets and KeyBanc Capital Markets are underwriting the IPO.

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