AEW Plans Two Apartment Developments Costing Nearly $400MM

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By Jon Peterson

Boston-based AEW Capital Management has plans to development apartment projects in San Francisco and San Jose that have total development costs of $399.6 million, according to sources familiar with the projects.

AEW declined to comment when contacted for this story and would not release information on the location of the two projects.

[contextly_sidebar id=”ESM9NjllGOMkPM2BrlMnUUlgMzHRiFwz”]The project in San Francisco will be done in a joint venture with an un-named development partner. This is an apartment tower project that will have a total development cost of $332.6 million.

The San Jose project is much smaller. Its total projected construction cost is estimated at $63.6 million. There will be an un-named joint venture development partner in this project, as well.

AEW will be making equity investments in both of these projects for its commingled fund, AEW Core Property Trust, according to a document received from the Orange County Employees Retirement System.

The Core Property Trust is a core open-ended commingled fund managed by AEW. Even though it’s a core fund, a small percentage of the fund’s portfolio is allowed for development opportunities. This allows a manager like AEW to have a “develop to core strategy.” It means that once these properties are stabilized they will become core assets. Many core managers feel this is a more effective way to own core assets in many of the pricey real estate markets. Once the asset is built and occupied, the manager doesn’t have to get into a bidding war to buy the property. This is mainly happening with apartments and office buildings.

AEW formed the Core Property Trust in October of 2007. The commingled fund has a net asset value of $4.4 billion, as of the end of March. It has a current loan-to-value ratio of 29.41 percent. The real estate manager holds 3.06 percent of the fund held in cash reserves.

Orange County Employees has been an investor in the commingled fund since October of 2009. Its commitment funded into the Core Property Trust is $137 million. The market value of this investment is $221 million. Its current IRR return on its investment is 12.26 percent.

The Core Property Trust only invested in apartments during the first quarter of this year. Besides the deals in San Francisco and San Jose, it also acquired an apartment complex in Dunwoody, Ga. for $153 million and a complex in Lynwood, Mass. for $67 million.

The commingled fund has around 1/3 of its portfolio located in the West Coast. The rest of its portfolio is split with 32.81 percent in the East, 31.28 percent in the South and the balance in the Midwest. Apartments now make up 27.6 percent of the portfolio. The other parts of the commingled fund are office buildings, retail, industrial, hotels, land and a mezzanine loan secured by a senior living facility.

West Coast Commercial Real Estate News