CHICAGO, IL – Equity Residential (NYSE: EQR), an S&P 500 company focused on the acquisition, development, and management of residential real estate in and around dynamic cities, and Toll Brothers, Inc. (NYSE: TOL) , the country's leading company The luxury real estate developer, through its Toll Brothers Apartment Living division, announced the establishment of a strategic partnership to develop new rental apartments in key US markets. Through the partnership, the parties intend to initially focus on the selective acquisition and development of community land in six major cities where both parties have a significant or growing presence: Atlanta; Austin; Boston; Denver; Orange County / San Diego; and Seattle and Dallas-Fort Worth, a market that Equity Residential recently re-entered.
Over the next three years, Equity Residential will invest 75% of the equity in each selected project and Toll Brothers 25%. It is expected that each project will also be financed with around 60% leverage. Equity Residential will have the option to purchase any property after stabilization. The parties have targeted an initial minimum co-investment of approximately $ 750 million in combined equity or nearly $ 1.9 billion in capacity with an assumed leverage of 60%. These goals, which depend on the identification of mutually acceptable properties, could increase as additional possibilities are identified. Three properties currently controlled by Toll Brothers, with an estimated total project cost of approximately $ 242 million, are expected to fuel the project.
Toll Brothers will act as the executive member of each project, overseeing the permits, planning and construction for which it receives development, construction management and financing fees, as well as a sponsored stake that will be realized when each property is sold, and has agreed, with limited exceptions, to develop residential projects exclusively with Equity Residential in the designated Metro markets. Equity Residential receives fees for property management, leasing and marketing, and building supervision.
"We are delighted to be working again with Toll Brothers and their seasoned residential development team, with whom we have had a long and successful relationship," said Mark J. Parrell, President and CEO of Equity Residential. “This venture will combine Equity Residential's market knowledge and balance sheet strength with Toll Brothers' existing deep development capability to produce high quality residential properties in our expansion markets and predominantly suburban locations in our existing markets that appeal to our affluent tenant demographics. We expect this venture to bring significant added value to our shareholders, accelerate our diversification efforts and enable us to expand our development efforts efficiently. "
"We are excited to have this exciting partnership with Equity Residential that will bring tremendous benefits to our two companies," said Douglas C. Yearley, Jr., Chairman and CEO of Toll Brothers. “This venture will increase the capital efficiency of our Toll Brothers Apartment Living platform and allow us to develop more apartments with less capital. If Equity Residential invests with us on initial property purchase and the likely developed property buyer is in stabilization, it will allow our Apartment Living business to improve return on equity and generate a higher and more predictable stream of income through constant and recurring fees and property Sales."