New Equity Partner on Mission Bay Apartments
Submitted August 18, 2010, 6:42 PM
JP Morgan Asset Management has made a $78.6 million equity investment in the 192-unit Strata apartments in the Mission Bay District of downtown San Francisco.
JP Morgan replaces AIG, which had been the equity partner and majority owner along with the developer, Palo Alto-based Pacific Urban Residential. The property is 18 months old.
Pace would not disclose the capitalization rate on the transaction with JP Morgan. “This deal was done at a cap rate that is very competitive with other cap rates on recent apartment sales in the greater Bay Area,” he said.
This property has performed well from an occupancy standpoint. It was at 98.6 percent occupied when the transaction with JP Morgan was completed. That is just about where the apartment market is for occupancy in the Mission Bay area. But in-place tenant rents are 15 percent to 20 percent below market, Pace said. “We see a little movement in rents upward by maybe 2 percent to 3 percent. We have a way to go before we get the income in the property up to a market-rent situation,” Pace said.
JP Morgan consummated the investment on behalf of its open-ended, commingled JP Morgan Strategic Property Fund. The fund had total plan assets of $9.7 billion through 2009. The real estate manager is trying to buy core assets around the country in the office, industrial, retail and apartment sectors. JP Morgan has $750 million worth of deals under contract for the commingled fund that it hopes to close on by the end of the third quarter.
The Strata Apartment deal is the latest example of strong institutional interest in the Mission Bay district of San Francisco. Earlier this year Houston-based The Lionstone Group paid $52.5 million to buy a $90 million construction loan on the empty 500 Terry Francois building. At the end of last year, 550 Terry Francois with nearly 283,000 square feet was bought by GLL Real Estate for $135 million.
Pacific Urban Residential is the new name for two previously independent companies, Pacific Residential Co. and Urban Housing Group. Urban Housing pursued development while Pacific Residential acquired existing apartments. “I felt it would be better to merge the two companies to end any confusion,” Pace said. Pacific Urban is one of multiple real estate companies held under the umbrella Marcus & Millichap Co. Other companies include Marcus & Millichap Real Estate Investment Services.
Pacific Urban is developing a 300-unit apartment complex in Fremont situated close to the BART station. Construction is unlikely to start until April or May 2011. Construction costs have dropped 15 percent to 20 percent in the last several years, which allows Pacific Urban to accept lower rents while still earning a respectable return on its investment. “We will make this work at rents of $1,800 per month. A couple of years ago, at the same project, we would have been asking for rents of $2,400 per month,” Pace said.
