Canadian Firm Acquires Huge San Jose Apartment Complex
Submitted December 8, 2011, 2:05 PM
Montreal-based Ivanhoe Cambridge has made its first move into the San Francisco Bay Area multifamily market with the $235 million acquisition of a 948-unit complex at 355 Kiely Blvd. in San Jose.
“We are now considering the purchase of three other properties in the region that total 500 units. We could have a transaction completed on this sometime in January,” said Sylvain Fortier, president of the company's residential arm.
The company anticipates a leveraged internal rate of return, or IRR, in the low teens, he said. The company paid all cash for the property but could put up to 50 percent debt on the property.
Multifamily rents in the South Bay are rising fast, according to Marcus & Millichap Real Estate Investment Services. Effective rents are projected to climb more than 6 percent this year, driven by strong local job creation, the in-migration of workers and a paucity of new multifamily supply.
The Kiely complex in particular benefits from being well-located on a couple of fronts. The complex falls within the area served by the Cupertino Union School District, which has 25 elementary and middle schools. The well-regarded Cupertino schools drive both home values and demand for rental units, Realtors say.
In addition, it is near the Apple Inc. headquarters, the new Kaiser Permanente Santa Clara Medical Center and the Santana Row and Westfield Valley Fair shopping node.
Ivanhoe plans to spend $15 million beyond the purchase price to renovate The Park Kiely complex including modernizing the units themselves, upgrading a main swimming pool and improving the landscaping.
The seller was Laramar Communities LLC, an apartment investment company that has offices both in Chicago and San Francisco. Eastdil Secured brokered the transaction. Jeff Weber, Eastdil's senior managing director in its San Francisco office, did not return a call seeking comment. Nor did Laramar.
Redwood City-based Demmon Partners will manage the complex, which was built between 1968 and 1972.
Ivanhoe is the real estate arm of the Caisse de depot et placement du Quebec, which manages institutional funds primarily for public and private pension funds in Canada. The real estate manager now has an apartment portfolio valued at $1.5 billion. Its long term goal is to double its size. It currently owns 17 assets in Manhattan with 2,600 units and is looking to invest in other major U.S. markets. This would include San Francisco and other parts of the Bay Area, Los Angeles, Boston and Washington, D.C.
Even though the company invests in offices and retail, it is focused only on multifamily in the Bay Area.
Ivanhoe Cambridge says it is one of the 10 largest real estate companies in the world with $30 billion in Canadian dollars in assets at the end of last year. At current exchange rates, a Canadian dollar is worth slightly more than a U.S. dollar.
