Dive Brief:

• After initiating a “formal evaluation of strategic alternatives” earlier this year, Elme Communities took the first step to liquidating the company by selling a 19-asset portfolio to Atlanta-based investor, developer and manager Cortland Partners for $1.6 billion in cash, according to a news release. The deal is expected to close in the fourth quarter of 2025.
• In conjunction with the sale, the Bethesda, Maryland-based REIT’s board of trustees has approved a plan of sale and liquidation under which the company would market its remaining nine multifamily assets, as well as Watergate 600 — an office asset — with the goal of a sale in the next 12 months. The REIT’s shareholders still need to approve the plan.
• Elme has received a debt commitment of $520 million from Goldman Sachs Bank USA to provide debt financing secured by the REIT’s assets not included in the Cortland sale. The availability of the loan is contingent upon closing on all 19 properties.

Dive Insight:

Over the past several years, Elme, formerly known as WashREIT until 2022, has expanded its presence outside the Washington, D.C., metro area by acquiring properties in Atlanta, an effort to diversify its portfolio. Still, its stock continued to trade at a discount to values in the private market, forcing the REIT to explore alternatives.

“Elme has made deliberate strategic decisions to advance and refine our portfolio with the goal of maximizing shareholder value,” said Paul McDermott, president and CEO of Elme, in the news release. “Following a thorough board-led process, and despite our successful transformation into a focused multifamily platform with strong operating capabilities, market conditions have not allowed us to lower our cost of capital in a way that supports accretive growth.”

During the review process, Elme’s board consulted with more than 80 counterparties before determining that property sales were the most effective approach.

“Our evaluation process was robust, underpinning the board’s unanimous determination that the combination of the sale of assets to Cortland and subsequent sale of the remaining assets is most likely to result in the greatest value for shareholders as compared to the company’s other strategic alternatives, including continuing to operate the business as an independent going concern,” Benjamin Butcher, lead independent trustee at Elme, said in the release.

Anthony Paolone, executive director at JPMorgan, estimated a 5.7% cap rate on the 19 properties sold to Cortland and a 6.4% cap rate on the remaining properties in a research note shared with Multifamily Dive.

“Overall, while pricing wasn’t as strong as we hoped, we think that the Elme board and management ran a good process to try to maximize value,” Paolone wrote. “We think the realization that it was going to have a difficult time achieving an attractive cost of capital in the public markets and was better off taking the money today for shareholders deserves kudos.”

Paolone also suggested that the Cortland deal may show that there isn’t as much liquidity in the multifamily sector as is often believed, even though the portfolio is skewed toward class B properties and centered in the Washington, D.C., area, where concerns exist about federal job cuts. 

“We no less think the point is clear that cap rates on larger transactions are higher than the ‘4s’ being cited for the best assets in the best locations in one-off trades,” Paolone wrote.

Cortland, the No. 9 apartment owner in the country, is no stranger to making deals with publicly traded REITs. In 2019, the firm became the largest apartment owner in the Dallas area after its $1.2 billion privatization of Canadian-based Pure Multifamily REIT. 

“This [Elme] transaction is a major milestone in Cortland’s history, as we significantly grow our presence in the greater Washington, D.C. area and our home state of Georgia,” said Steven DeFrancis, CEO of Cortland, in the release.

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