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Amli selling-off its local apartments: Sale to Morgan Stanley prompts real estate firm to unload 6 multimillion-dollar complexes

April 3, 2006

One of the biggest owners of Indianapolis apartment complexes will soon be all but erased from the landscape, as Chicago-based Amli Residential Properties LP prepares to sell six of its seven properties.

Two of the complexes, Amli at Lake Clearwater and Amli at Castle Creek, have already traded hands. Louisville-based NTS Realty Holdings LP in late March purchased both properties for $50 million, a slight discount from Amli's asking price.

Amli at Old Town Carmel, a mixed-use project that includes 91 apartments and 11 retail suites, is under contract to locally based Barrett & Stokely, sources said. The list price on that property is $13 million.

A portfolio of four Amli properties-Eagle Creek, Carmel Center, Conner Farms and Spring Mill-has attracted a whopping 18 offers with a total asking price of $121 million, said George Tikijian, owner of Castleton-based multifamily brokerage Tikijian Associates, which is listing the Amli properties.

The only local Amli community not up for sale is Amli at River Bend near Keystone at the Crossing. Amli owns just 40 percent of that property after selling its majority stake last fall to a client of Rye Brook, N.Y.-based investment firm Tuckerman Group LLC. Other local properties are wholly owned by the company.

Amli listed the Clearwater and Castle Creek properties late last year in preparation for its $21 billion sale to New York-based financial giant Morgan Stanley. Amli's buyout closed in early February, making Amli one of a growing number of publicly traded real estate investment trusts to leave the public markets, either going private or being dissolved through a merger.

Amli has been one of the most prominent names in the Indianapolis multifamily market since the mid-1990s. Although other companies own more properties, the Amli name is recognizable because of its highprofile north- and west-side locations.

"They are quality assets in good locations," said Bradley B. Chambers, president of downtown-based multifamily developer Buckingham Cos.

Although Buckingham, which has plans to redevelop the mammoth Mohawk Hills complex and golf course in Carmel, isn't bidding on any of the Amli properties, Chambers said he's not surprised the properties are drawing interest from investors around the country.

With its February merger, Amli became one of about a dozen REITs no longer trading stock, The Wall Street Journal reported last month. The newspaper said privatization is being driven by federal regulations that are costly to comply with, especially for small REITs. There's also a perception that executives of private development companies make more money than their counterparts at publicly traded REITs, which enjoy tax advantages in exchange for distributing the majority of their profits to shareholders.

At the time of its merger, Amli had 73 apartment communities containing more than 27,000 units in nine states. With the exception of Indianapolis, nearly all its communities are in socalled first-tier markets, such as Chicago, southeast Florida, Seattle, Dallas and southern California.

Amli is selling its local properties to diversify geographically, said CEO Gregory Mutz. Proceeds from the Indianapolis sales will be used to help finance expansion on the East and West coasts, he said.

In unloading properties, Amli finds a hungry market of investors ready to snap up apartment communities amid a recovering rental market.

The 18 bidders for the Amli portfolio include a mixture of local, regional and national investors, Tikijian said. His firm is evaluating the offers and narrowing them with a goal of closing on a sale by June.

As in other sectors of commercial real estate, the investment situation on the East and West coasts has driven investors to seek properties in the Midwest, said Steve LaMotte Jr., a multifamily investment broker at the local office of Los Angeles-based CB Richard Ellis.

Many investors are selling properties that have appreciated dramatically in value in recent years. Flush with cash, they're looking to the Midwest to find yields higher than they can now expect in the nation's hottest markets, he said. Many of them are looking for a quick turnaround to take advantage of 1031 exchanges, which allow investors to defer capital gains taxes on sales.

"The 1031 investors are really driving the market" locally, LaMotte said, ticking off a half-dozen recent multifamily sales spurred by tax-deferral strategies of the investors. Those include an Eagle Creekarea complex sold by locally based Gene B. Glick Co. to a California investor and two Speedway complexes sold by a Canadian operator to Florida-based investors.

The improving rental market is an added attraction, LaMotte and others said. Overall occupancy at area complexes edged up to 92.3 percent in the first quarter, from 91.5 percent in the fourth quarter of 2005, according to CB Richard Ellis. Less than two years ago, occupancy rates hovered at or below the 90-percent mark.

Apartment owners are less likely to give concessions such as free rent than they were a few years ago, which improves operating results for their properties.
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