Woodmont Acquires More San Francisco Multifamily
Submitted December 27, 2011, 10:30 PM
A group of private investors that acquired 160 San Francisco apartments this summer has added another 75 units to the mix, paying $16 million.
Greg Galli, a managing partner for the acquiring Woodmont Group, said a premium 40-unit property located in the the city’s central Noe Valley neighborhood at 4130-4140 Cesar Chavez St. helps balance a 35-unit property in the less-desirable Tenderloin and Mid-Market Street area.
“I think it (the new tax policy) will drive development on that corridor much higher, and that development will filter down to a building like ours,” Galli said. “It will definitely bring jobs to the area, and for a Tenderloin-Civic Center building, the real estate is good, and the tenant profile is really good.”
The purchase price for the two properties equates to $213,000 a unit and renders an approximately 5.25 percent capitalization rate on current income, according to a news release. The return and purchase price are not wildly different from those on the apartments the group bought this summer, when it paid $275,000 a unit at an initial yield of 5.6 percent.
The seller was Klingbeil Capital Management, but like many apartments trading today in San Francisco, the properties were once owned by the Lembi family.
Other managing partners affiliated with the Woodmont Group are Wayne Levenfeld of Pacific Valley Investors and Linda Law of Law & Associates. Law has a history of redevelopment in East Palo Alto. Galli is an executive with Belmont’s Woodmont Cos., a large Bay Area apartment and commercial property owner. Multiple limited partners are also investors in the acquisitions.
Even though both apartment buildings just acquired as well as the eight this group bought this summer are all rent-controlled, rents are rising fast enough that they make it possible to support substantial improvements in the property, Galli said. Landlords are allowed to raise rents to market rates in rent-controlled units when a tenant leaves. Annual rent increases are limited as long as there is no tenant turnover, however.
“When you are dealing with vacant apartments, you can get large rents, which allows an owner to go in and spend money. When we have a vacancy we go in and try to do our best work. In years past, you couldn’t justify it for the rents you got,” Galli said.
The group wants to acquire more San Francisco units to create greater economies of scale, Galli said. At present, no other purchase is imminent, but they are scouring the landscape for opportunities.
“I wish we had another big deal in the wings,” Galli said. “We are going to look really hard to triple our count between now and the end of 2012. We want to get well north of 500 units in San Francisco and then run them.”
