With the strong rental market in the nation’s capital, rental certainly made sense. Though Federal owns about 1,000 units of multifamily, it doesn’t always build its own. Sometimes it works with partners. In two of its signature Arlington, Va., projects, it pulled in big names in multifamily development, using Atlanta-based REIT Post Properties at Pentagon Row and Greenbelt, Md.–based owner, manager, and builder Bozzuto Cos. at Shirlington Village. Even now, it’s partnering with Arlington, Va.–based REIT AvalonBay Communities at its Assembly Row mixed-use development in Somerville, Mass. The development is slated to include 1.7 million square feet of office space, 500,000 square feet of retail, 2,100 units of housing, a hotel, and a 340,000-square-foot IKEA furniture store, according to The Somerville Journal.

“While we think it’s a great property, it’s an unproven destination,” says Andrew Blocher, senior vice president and CFO at Federal. “In a situation like that, the risks associated with that put us in a position where we’re a lot more comfortable bringing in a residential partner.”

In Santana Row, in San Jose, Calif., Federal has more than 300 units of its own real estate coming on line. Right now, residential represents only about 4 or 5 percent of its rental income, but Blocher could see this number doubling as new projects come on line. The company only builds apartments where it’s already planning or has retail. Even then, the residential must fit into Federal’s risk appetite.

“It depends on the unique risks in opportunities that come along with specific residential development,” Blocher says. “Mid Pike is a great established residential environment in the D.C. area. Mid Pike shopping center has been there forever. We understand it’s a great infill location. As a result, we’re more willing to take on the residential exposure.”

Other Developers Move In