Cottonwood Communities has entered into a deal with a private owner to take over its largely Sun Belt apartment portfolio.

The Salt Lake City-based nontraded REIT signed a merger agreement with RealSource Properties, the companies announced. The deal would make RealSource a subsidiary of Cottonwood, and the combined company would have $2.8B in assets.

“We believe this merger strengthens our platform through increased scale and diversification, positioning us to realize cost efficiencies and drive incremental revenue growth, as well as creating a pipeline of meaningful value-add opportunities,” Cottonwood CEO Daniel Shaeffer said in a statement.

As of March, Cottonwood owned 37 properties totaling 9,329 units across 11 states. The majority of the properties it owns and operates are in Utah, Georgia, Texas and Florida.

Once the merger closes, Cottonwood would own 48 multifamily communities totaling 11,037 units in 13 states. The merger would expand Cottonwood's presence into Ohio, Colorado and Kentucky, and it would add to its portfolio in Texas, Georgia and North Carolina.

Cottonwood would also acquire third-party property management contracts at seven additional properties totaling 1,353 units.

Robert A. Stanger & Co. CEO Kevin Gannon, who tracks nontraded REITs, said Cottonwood Communities has been one of the top performers in the sector over the last five years, with a 7.9% total return. Cottonwood had a net asset value of $730M prior to the merger, he said.

“We expect them to grow over the next few years mostly by consolidating other non-traded REITs and Delaware Statutory Trusts,” Gannon said in an emailed statement.

The deal is expected to close in the third or fourth quarter. DLA Piper LLP served as legal counsel to Cottonwood, and Mayer Brown LLP represented RealSource.