By Jon Peterson
San Francisco-based BRE Properties Inc. has begun vertical construction on its 360-unit MB360 apartment development in the Mission Bay area of San Francisco.The publicly traded real estate investment trust expects total development cost of $227 million, or $630,000 a unit. The company expects a yield in the high 6 percent range once the property is leased and fully operational, Stephen Dominiak, chief investment officer, told analysts during the company’s first-quarter conference call April 1.
“For similar products, a stabilized class A spot-market cap[italization] rate today would be below 4 percent,” he said.
The project, at 1200 4th Street and 701 China Basin, is one of five the company has under construction in California and Washington including three in the Bay Area; the second, in Sunnyvale, is a $121.9 million project, while the third, in Redwood City, is a $97.8 million project. The company’s development pipeline includes an Emeryville property with two existing and occupied offices buildings. It also has a Walnut Creek site adjacent to BART under contract where it is pursuing entitlements.
The company is in the final stages of finding a joint-venture partner for an 8.4-acre development in Pleasanton at Owens Drive and Willow Road, where it hopes to have more than 500 units. “We are concluding the marketing phase of the Pleasanton joint-venture effort. We will provide an update in 90 days,” Constance Moore, chief executive officer for BRE, said during the call.
The San Francisco Bay Area is BRE’s largest market with 15 communities and nearly 4,200 existing apartments. In total, the company owns not quite 22,000 apartments and recorded net operating income in the first quarter of $69.5 million.
BRE is funding its apartment developments with sale proceeds from properties over the next two years. “Beyond the $200 million to $225 million we expect to sell this year, we will continue to pursue the remaining $150 million to $200 million in 2014 to match fund our development funding needs,” Moore said. The assets they are selling are in Southern California, Denver and Phoenix.
The Mission Bay site is 3.7 acres on two parcels and represents the company’s only property in the Mission Bay neighborhood of San Francisco.
“We anticipate that our development will be attractive to professional workers between the ages of 25 to 45. These people are either employed in San Francisco or commute to other places in the Bay Area,” John Wayland, a senior vice president of real estate investments for BRE in its San Francisco office, said in an e-mail response to a reporter’s query.
“It’s all about location. There is entertainment, restaurants, major employers and public transportation just steps from the site. Our residents will be able to walk to AT&T [Park] and the new UCSF campus. There’s also easy access to the area’s major traffic arteries. It is a very compelling location,” Wayland said.
BRE plans to incorporate amenities to attract high-tech workers including concierge-style services like cold storage for grocery delivery and a package notification service. The developer plans service retail for the first floor of the project.
Photo by Chad Ziemendorf