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Sam Zell's Equity Residential Joins Toll Brothers In $1.9B Multifamily Development JV

The lounge area leading out to the first-floor courtyard at Equity Residential's 100 K in Washington, D.C.

Two big names in the national multifamily market are joining forces to take advantage of a historically positive period for the asset class.

Equity Residential and Toll Brothers have agreed to form a partnership to develop $1.9B worth of new apartment buildings across seven metropolitan areas, the two companies announced in a joint press release on Tuesday. The two companies will combine to contribute $750M of equity toward development in the Atlanta, Boston, Denver, Seattle and San Diego/Orange County markets, which the companies grouped together in laying out the plan. The Texas markets of Austin and Dallas-Fort Worth will also be among the JV's targets.

The formula for a project under the partnership would play out as follows, according to the release: EQR, founded and still chaired by Sam Zell, would contribute 75% of the equity and earn fees for construction management, as well as property management, marketing and leasing for when a project comes online. Toll Brothers, through its Toll Brothers Apartment Living subsidiary, would contribute 25% of a project's equity portion and oversee approvals, design and construction of a development. Toll Brothers would receive fees for development, construction management and financing.

Toll Brothers Apartment Living has agreed to partner exclusively with EQR for multifamily development in the JV's target markets, with limited exceptions, the release says. Toll Brothers, which made its name building single-family homes, would also have a "promoted interest" in the eventual sales of properties, while EQR would retain an option to purchase properties outright upon stabilization under the partnership agreement.

The JV expects to finance each project with about 60% leverage and isn't treating the partnership as a closed fund, instead calling the $750M an "initial minimum co-investment," the release says. The venture will launch with three development sites Toll Brothers already controls, for which construction is estimated to cost a combined $242M.

“This venture will increase the capital efficiency of our Toll Brothers Apartment Living platform, allowing us to develop more apartments with less capital," Toll Brothers Chairman and CEO Douglas Yearley said in a statement provided with the release. "Having Equity Residential co-investing with us at initial site acquisition and being the likely purchaser of developed properties at stabilization will enable our Apartment Living business to improve return on equity and to generate a higher and more predictable income stream through consistent and recurring fees and property sales.”