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Milestone Apartment REIT Brings Class B Strength to Starwood

Acquisition Scheduled to Close April 28

By Carl Whitaker | Thursday, April 13, 2017


Starwood Capital Group’s announcement that the company would be purchasing Milestone Apartments REIT (MST.UN) made headlines in January, and the anticipated closing date of April 28 continues to get closer.

MST.UN has been one of the nation’s strongest performing REITs in regards to rent growth for more than a year. Of the nine REITs tracked by Axiometrics, MST.UN has had the highest annual rent growth in all but one of 14 months dating to January 2016. Tracking MST.UN’s annual rent growth against the average of all REITs (including MST.UN) helps show how well the REIT has performed in recent months.

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From a geographic perspective, MST.UN properties are primarily located in Sun Belt metros, although some of its metros, such as Salt Lake City, Colorado Springs, Denver and Kansas City are north of the standard Sun Belt definition.

Starwood Capital Group offers an equally diverse apartment portfolio, with assets in 16 states stretching from New England down the east coast and throughout the southern U.S., all the way to California and Washington on the west coast.

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The soon-to-be combined portfolios of Starwood Capital Group and MST.UN will offer an impressive level of geographic coverage, but what can be said about coverage within these states? Will the combined portfolio feature a heavy concentration of urban core properties? Are these properties typically Class A product with rents near the top of the market, or will the portfolio offer a diverse array of properties with some Class A product sprinkled in with primarily Class B properties?

MST.UN’s bread and butter, so to speak, is properties typically within the Class B classification, meaning rent levels are neither in the 20% highest nor 20% lowest in their markets. The portfolio’s balance of Class B properties helps explain the REIT’s relative strength compared to other REIT performance. Class A has been hit substantially in recent months by new supply. Though new supply affects market performance as a whole, Class B and Class C product is not as directly affected by new supply.

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This annual effective rent growth by asset class chart shows how supply can affect rent growth performance. Looking specifically at the early summer months of 2016, the entire market slowed in terms of rent growth, but Class A recorded the biggest slowdown, much of it resulting from new supply.

Interestingly enough, Class A seemed to show improvement in early 2017.

Starwood Capital Group is somewhat more diversified in terms of asset class, with some Class A product and a few Class C properties. In terms of the company’s overall portfolio though, the majority of the company’s assets are Class B.

When combined, approximately 80% of the companies’ portfolio is Class B product. Class A makes up roughly 8%, while Class C rounds out the remaining 12%.


Asset Class

Class A

Class B

Class C

Percent of Portfolio





With such a heavy weighting of Class B product, it probably is not surprising that the combined portfolio is located almost exclusively in suburban locations. In fact, only 1% of the combined portfolio is located in urban core areas. Urban core areas have been particularly impacted by new supply in recent months, so the lack of urban core product in the combined portfolio has helped each portfolio maintain strength relative to the rest of the market.

Now that some attention has been devoted to analyzing certain aspects of this soon-to-be combined portfolio, what might this mean moving forward?

Again, the combined portfolio is primarily Class B product, which means the wave of new supply will likely not affect the new Starwood to the same degree as a portfolio heavily weighted with Class A product – especially given the lack of urban core product in the combined portfolio.

The geographic diversity of the portfolio as well means that local ebbs and flows may not affect the overall performance as much as that of companies that primarily focus on one geographic area. While all markets are cyclical, the timeline of cyclicality for individual markets is different – i.e. what is happening in Washington D.C. might not be happening in Los Angeles for a few more years. In essence, the geographic diversity of the portfolio will help smooth ebbs and flows of local markets.


Carl Whitaker

Carl Whitaker

Real Estate Analyst

Carl Whitaker is a Real Estate Analyst for Axiometrics.

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