By Jon Peterson
A private buyer is expected to close on Thursday on the acquisition of the 12-unit College Terrace Apartments in Palo Alto. The asset will be bought at a price of $6.4 million, or $1,004 per square foot.
“This kind of pricing on a per square foot basis will be one of the highest per square foot sales for apartments outside of San Francisco,” says David Weglarz, vice president and director of multifamily sales for Transwestern in its Walnut Creek office. He worked on the sale of the property as a representative of the private individual seller.[contextly_sidebar id=”xNvp0LF1wBddmdnSTbccElJ19XbhVOCI”]The next highest price per square foot for an apartment complex outside of San Francisco was nearly $975 per square foot for an 8-unit complex located in San Mateo that was purchased in February of this year, according to CoStar.
The complex in Palo Alto is located at 2251-2277 Williams Street. The location of this property is a little more than a block from Stanford University and a short walk from a Caltrain stop that has an average daily ridership of at least 7,000 people. The property could be rented by either professors at Stanford or students attending the school. The asset is a two-story complex that has 10 parking spaces.
The cap rate on the sale was just above 2 percent and a 25 gross rent multiplier. The return on the cap rate is based on the property’s current net operation income.
The asset was sold by the original developer of the property. The property was constructed in three stages during 1924, 1948 and 1952. The property was owned by a third-generation family member who does not live in the Bay Area. The asset did attract strong interest once the property was first marketed. “Within a week of marketing, this property had five offers, three of which were all cash offers,” said Weglarz. This deal had a long escrow period due to the seller exercising multiple extensions to the contract to search for their 1031 exchange up-leg out of state.
The new owners of the property will be able to add some value to the property in the future. The complex as it stands now has below market rents in a market where there is no rent control. The overall average rent for the complex is $2,200 per month. The average rent for apartments in Palo Alto is $3,200 per month.