Rhizome Partners' Bill Chen updates his publicly traded real estate thesis+ $AIV pitch

Episode Summary

Executive Summary: Andrew Walker and Bill Chen discuss the recent rerating of publicly traded multifamily REITs, then focus on Aimco (AIV) as a complex, catalyst-rich special situation. Bill argues public REITs still offer value versus private-market cap rates, and that Aimco’s Miami asset sales, share repurchases, conservative leverage, and development pipeline could unlock substantial NAV upside and special dividends.

Main Topics: Publicly traded real estate vs. private market valuation gap (Priority: 5/5): The conversation revisits Bill’s earlier thesis that public multifamily REITs were trading far below private-market values and replacement cost. Bill argues that gap has narrowed, but public REITs may still deserve a premium or at least remain attractive relative to private deals. Interest rates, cap rates, and multifamily pricing (Priority: 5/5): They explore how 10-year Treasury yields interact with real estate cap rates. Bill frames cap rates as flexible around financing conditions and emphasizes that lower rates could drive further upside, while supply shortages support property valuations. Management quality and the 'REIT mafia' capital-allocation framework (Priority: 4/5): Bill praises large multifamily REITs for disciplined behavior: low leverage, laddered debt, share buybacks when discounted, and issuing stock when above NAV. He sees this predictable governance as a strength, not a weakness. Aimco as a special situation with near-term catalysts (Priority: 5/5): Aimco is presented as a complex public REIT where the market may underappreciate the value of Miami land and recent development assets. The key near-term catalyst is the sale of one or more Miami properties and potential return of proceeds to shareholders. NAV analysis and hidden asset value (Priority: 5/5): Bill walks through an asset-by-asset valuation: stabilized multifamily, construction-in-progress, and development parcels. He argues the market is not properly valuing non-cash-flowing assets or the embedded value of assumable debt and land. Boots-on-the-ground due diligence and neighborhood trends (Priority: 4/5): A major part of Bill’s process is visiting assets and markets to assess not only current quality but future trajectory. He emphasizes demographic vibrancy, job growth, talent attraction, and neighborhood change as critical inputs. Potential special dividends and multiple layers of upside (Priority: 4/5): Beyond share buybacks and NAV realization, Bill highlights the possibility of special dividends from property sales, which could materially lower cost basis and create a second leg of upside if the stock remains undervalued.

Key Arguments: Publicly traded multifamily REITs remain attractive because private-market cap rates have stayed in the low-to-mid 5% range while publics were previously priced much more cheaply. A 5% cap rate is a reasonable sell threshold for high-quality large-cap multifamily REITs, especially if the 10-year Treasury is around 4% or lower. Lower supply delivery in Sun Belt multifamily supports NOI growth, making current valuations more sustainable than bears expected. Large, liquid REITs with strong balance sheets and disciplined shareholder-friendly capital allocation deserve a premium over thinly traded names. Aimco is undervalued because the market underestimates the value of its Miami development site, renovated trophy assets, and stabilized portfolio. Aimco’s management has aligned itself with shareholders by buying back stock below NAV, avoiding aggressive development spending, and indicating willingness to return sale proceeds. The company’s debt structure and assumable financing add hidden value that may not be fully recognized by the market. Boots-on-the-ground underwriting can reveal neighborhood momentum, gentrification, and talent attraction that financial screens miss. Special dividends from asset sales could materially enhance returns by returning a large portion of purchase price in cash while the stock remains discounted. Complex real estate situations can create enduring alpha because many investors lack the patience or expertise to fully underwrite them.

Data Points: YCharts advisor time savings: 29 hours per month - Sponsor copy touting YCharts’ efficiency for advisors. Mid-America Apartment Communities (MAA) total return since prior podcast: over 25% - Used as an example of public multifamily REIT performance over the last year. Public REIT valuation at prior discussion: about a 7% cap rate - Bill said large-cap multifamily REITs were previously trading around this level when the opportunity was most obvious. Current large-cap multifamily REIT trading level: high 5% cap rate - Bill suggests these REITs still trade around the high-5% area today. Blackstone multifamily transaction cap rate: ~5.2% to 5.6% - Bill cites estimates for a major Blackstone deal after adjusting for taxes and insurance. KKR multifamily acquisition yield: possibly ~4% day-one yield - Bill notes market chatter that the deal may imply a lower yield than originally thought. Mid-America and Camden debt issuance: 10-year unsecured bonds at 4.9% and 5.0% - Examples of excellent access to capital earlier this year. Aimco share price at time of discussion: $8.70 to $8.71 - Current trading level for AIV when the episode was recorded. Aimco estimated fair value: $13.67 base case - Bill’s model estimate for AIV. Aimco valuation range: $12 to $15.16 - Bill’s broader estimated range for the stock. Aimco market capitalization: about $1.3 billion - Approximate equity market value referenced in the discussion. Miami development site bids: 10+ bids ranging from $500M to $600M+ - Bill references a Real Deal article and his own base case around this asset. Miami development site base-case sale value: $590 million - Bill’s estimate for the land/development parcel next to Citadel’s future Miami HQ. Hamilton asset value estimate: $240 million - Bill’s estimate for another recently renovated Miami asset. Gross proceeds from Miami sales: about $830 million - Bill sums the estimated land and Hamilton sale values. Potential special dividend return: 25% to 45% of purchase price - Bill suggests proceeds could be returned to shareholders if sales close. Aimco stabilized multifamily asset value: $1.5 billion to $1.6 billion - Value attributed to the stabilized portfolio. Stabilized multifamily NOI: over $100 million - Current annualized NOI for the stabilized assets. Stabilized asset cap rate range: 5.5% to 6.5% - Bill’s valuation band for the stabilized portfolio. Construction in progress: $521 million / $528 million - Different references in the discussion to Aimco’s development pipeline and carry value. Construction pipeline rent performance: 17% above underwriting - Bill says actual rents are materially ahead of original assumptions. Aimco share repurchase pace: 4% to 6% of shares outstanding annually - Bill cites the annualized buyback rate. Aimco buyback average price in 2022: $7.33 - Average price paid for repurchases in Q4 2022. Aimco buyback average price in 2023: $7.51 - Average price paid over nine months in 2023. Aimco buyback average price in 2024 YTD: around $8.00 - Average repurchase price year-to-date in 2024. Aimco debt locking transaction: 9.1-year term at 4.25% - Bill praises the company for locking in long-duration low-cost debt in Q4 2022. Developer parcel transaction: $49 million purchase; 2 of 3 parcels sold - Example of Aimco’s horse-trading and capital recycling in Fort Lauderdale. Cap rate on one development/land asset scenario: ~3% - Bill argues a hypothetical sale of the Miami development asset would imply a very low cap rate to the buyer. Current leverage/loan-to-value target: around 20% - Bill describes the implicit REIT shareholder expectations for large multifamily REITs.

Pivotal Quotes: "there's a reason I use YChart Scrafts form, and it's because they're really simple, they're really easy, and they look great" — Andrew Walker: Sponsor read explaining why he uses YCharts for podcast visuals and chart prep. "there is a scenario where the public could potentially trade a premium to private, like it's happened in the past" — Bill Chen: Bill’s broader thesis that public REITs may no longer deserve a persistent discount to private assets. "this catalyst could happen in the next happen next week" — Bill Chen: On Aimco’s expected Miami asset-sale catalyst and timing.

Implications: If Bill’s thesis is right, public multifamily REITs could still have upside from rate-driven rerating and capital discipline. For Aimco, successful Miami sales and disciplined buybacks could unlock NAV and possibly trigger special dividends, giving investors both catalyst-driven and long-term value realization.