Final Bidders Selected for East Palo Alto Apartments
Submitted July 21, 2011, 12:35 AM
Three large institutional investors are vying in a final round of bidding for an 1,800-unit rent-controlled apartment portfolio in East Palo Alto.
San Francisco’s Prime Residential, AREA Property Partners and Equity Residential, a huge real estate investment trust, are believed to be finalists to buy the portfolio, which is owned by Wells Fargo & Co.
The portfolio has been on the market for approximately eight weeks, though the process has been exceptionally well-sealed. The sale is being managed by Eastdil Secured, which is a wholly owned subsidiary of Wells.
The East Palo Alto apartment portfolio has become a subject of deep public interest following battles over rent control between the previous owner, David Taran’s Page Mill Properties, and the city and tenants in the units.
The affordable housing community was enmeshed in the bank’s early maneuverings after the foreclosure, and San Francisco-based Bridge Housing Corp., a large affordable housing developer, was retained by Wells to prepare a report and take input from the community.
Bank officials have met with elected officials from San Mateo County and the city of East Palo Alto to inform them about the sales process several times, according to a source with direct knowledge of events. Most recently, bank and Eastdil executives have brought the three prospective buyers for a round of meetings and to answer questions.
The bank has said that it hopes to select a winning bidder in the next several days and to close a sale by the end of the summer or early fall, the source said.
Equity Residential is the largest publicly traded owner of multifamily properties in the country with not quite 120,000 apartments nationally, including more than 6,600 in the San Francisco Bay Area, including Santa Clara, Union City, Berkeley, Palo Alto and San Jose. It paid $51 million for a property in North San Jose before the bust and has entitlements and building permits to build not quite 1,000 units.
Last year it took in $1.99 billion in total revenue from continuing operations and had net income of not quite $296 million, according to public record.
Prime Residential is part of the Prime Group, a private company that owns and manages more than $4 billion in real estate assets worldwide and has principal offices in San Francisco. John Atwater, a co-chairman and chief executive officer for Prime as well as the company’s founder, has been directly involved in the bidding for the East Palo Alto units.
Among many other properties, Prime owns Park La Brea Apartments in Los Angeles, a more than 4,000-unit complex with garden-style and high-rise apartments that is regulated by the Los Angeles rent-control law.
AREA Property Partners, the former Apollo Real Estate Advisors, is an international investor and fund manager. Through various vehicles, the company has invested more than $13 billion in equity in projects with an aggregate value of more than $60 billion. It has California offices in San Francisco and Los Angeles.
The property in question, amassed by Taran over a number of years with backing from the California Public Employees’ Retirement System, is some of the most well-positioned and centrally located in the region. Not only does it fall roughly midway between San Francisco and San Jose, it has direct access to the East Bay via the Dumbarton Bridge. It is also next to one of the most desirable communities in the country, Palo Alto.
Besides apartments, Taran acquired small commercial properties and single-family homes on land immediately adjacent to U.S. 101 as part of his assemblage. All of the properties lie immediately north and south of the University Circle redevelopment at University Avenue and the freeway, which includes a Four Seasons hotel and not quite 500,000 square feet of offices. Taran’s plans included redevelopment, a prospect that especially worried affordable-housing advocates.
Still, it is easy to see why someone would seek to redevelop the properties in question. The buildings are predominantly old and in poor condition. Moreover, major parts of the neighborhood have already seen much rebuilding, with a newer Ikea and big box retail center nearby. The 200-room Four Seasons Silicon Valley at 2050 University Ave. in East Palo Alto sold for not quite $300,000 a door in February, as well.
