By Jon Peterson
Phoenix-based Alliance Residential is planning to re-enter the greater San Francisco Bay Area apartment market for the first time since the mid-2000s, and it is planning to invest $200 million to $300 million in the region over the next several years.
The first action in this move is to hire Peter Solar, who until recently was the San Francisco-based executive of Chicago-based Equity Residential, as a managing director to lead the company’s future investments in the region.
“We think now is a good time to come back into the Bay Area. The region has shown in recent times a very strong job growth and income levels, which makes sense for us to come back into the area,” says Jay Hiemenz, president of Alliance Residential.
The company will be looking at investing in market rate apartments in two ways. One would be to develop new properties. The other would involve buying existing properties that it can improve through the renovation. Alliance Residential would prefer to invest in properties that are somewhere in the range of 100 to 400 units.
“I would think the capital we will be investing will take us two or three years to invest in the marketplace. When we invest in an existing property, we typically spend somewhere in the range of $20,000 to $30,000 per unit to improve the asset,” said Hiemenz.
Alliance Residential invests with a variety of capital sources. “Some of the real estate managers we have dealt with in the past include Prudential Real Estate Investors, BlackRock Realty, Northwestern Mutual Real Estate Investments, The Stockbridge Group and AEW Capital Management,” said Hiemenz.
Alliance Residential will be looking at a variety of apartment markets in the Bay Area. This will include downtown San Francisco, the Peninsula, Silicon Valley and the East Bay. It will be keeping a skeptical eye on one market in particular. This would be San Jose. “This is a market that has added a lot of units recently and so far it has worked out. We will see how things go in this region in the future,” said Hiemenz.
Alliance Residential doesn’t own any properties in the San Francisco Bay Area currently. This doesn’t mean it’s not familiar with the region. The company does manage apartments on a third-party basis totaling somewhere between 5,000 to 6,000 units.
Solar has joined Alliance Residential after spending the last four years working in the San Francisco region for Equity Residential. “I felt this was a good opportunity for me to join a firm looking to expand into a market that I’m very familiar with,” says Solar.
One of Equity Residential’s most recent deals in the Bay Area involved the 176-unit Parc on Powell project in Emeryville. The publicly-traded real estate investment trust acquired its joint venture partner’s 95 percent interest in the complex for a stabilized value of $87.5 million, according to its 2014 full year results report.
Equity Residential has this project currently under development. It acquired its original 5 percent interest in the complex as part of the Archstone acquisition. The property is planned to become a stabilized asset in the second full year of ownership at a 4.8 percent yield on cost.