Buyers Spend $194MM on Bay Area Apartments
Submitted August 15, 2010, 2:51 PM
Institutional buyers continue to acquire Bay Area apartments at a furious pace, with trades involving four properties valued at nearly $200 million announced in the last month.
Palo Alto-based Essex Property Trust Inc. reported Aug. 6 that it paid $42.5 million all cash for The Commons, a 264-unit complex in Campbell, a Silicon Valley submarket. The purchase follows on the heels of Essex’ acquisition of 101 San Fernando, a 323-unit property in downtown San Jose, for $64.1 million. The San Jose complex includes 9,200 square feet of retail.
Meanwhile, Addison, Texas,-based Behringer Harvard acquired the 163-unit Acappella Apartments in San Bruno on Aug. 4, paying $55 million, according to public record. The company bought the luxury complex for its Multifamily REIT I Inc., a publicly registered, non-listed real estate investment trust. The property is adjacent to the San Francisco airport and The Shops at Tanforan, a 1.1 million square foot shopping center. It is also less than a mile from the corporate headquarters of YouTube LLC. The property was constructed in 2009 and is currently in lease-up.
The love affair with apartments stems from their widely expected, pack-leading recovery. Reis Inc. Research Director Victor Calanog reported Aug. 11 that apartments nationally saw their first drop in vacancy in two years during the second quarter, when rates dropped from 8 percent to 7.8 percent.
The apartment sector will lead the sector from the recession, he said. “Households are still expecting lower housing prices,” he said, “and marginal households want the flexibility of renting, so they can re-locate for a job.”
Another 40,000 units are expected to come online next year, he said, but the sector should be able to absorb the additions, and inventory growth will fall by half next year. Expect rent growth and positive net absorption this year, he said. Next year should be even better. Reis projects vacancy rates well below 7 percent nationally by 2014.
During the second quarter, the sector recorded more than 46,000 units of positive absorption, the largest quarterly net addition to the occupied stock in a decade, Calanog said.
The Campbell property is Essex’ first in that Silicon Valley submarket. It was acquired from Lyon Capital Ventures, an entity of William Lyon Homes based in Newport Beach. “We think that on a long-term basis that there will be job growth coming to the area around the complex, and this will benefit it over the length of time we will own the property,” said Adam Berry, a first vice president in Essex’ acquisitions department.
Essex places the pro forma cap rate on the deal at 5 percent. “This figure factors in where rents in the complex would be if we brought them up to market rents,” Berry said. Occupancy in the complex, developed in 1973, was 95 percent at the time of the close. Essex plans to continue buying apartments in the greater Bay Area, Berry says. “Our interest is more so in Silicon Valley and the Peninsula due to better employment growth and less in the East Bay,” he says.
Behringer Harvard bought the San Bruno complex from San Francisco-based MacFarlane Partners, which held it in a joint venture with San Francisco-based SNK Realty Group. MacFarlane owned the property for its MacFarlane Urban Real Estate Fund II, a commingled investment vehicle formed in December 2007. The total equity raise for the fund was $1 billion, and the lead investor is the California State Teachers’ Retirement System. CalSTRS made a $300 million allocation to the fund in December 2006. Through the end of September 2009, MacFarlane had called $190 million of the pension fund’s commitment. In its most recent report on the fund’s performance, CalSTRS placed a value on its investment of $43.6 million. MacFarlane has not fully invested all of its capital.
Behringer Harvard owns two other apartment complexes in the Bay Area on behalf of its Multifamily REIT. In September 2009 it bought the 390-unit Waterford Place in Dublin (related article). In January it acquired the 277-unit Acacia on Santa Rosa Creek in Santa Rosa.
