Avant Doubles Its Money with Vara

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By Jon Peterson

Dallas-based equity investor Berhringer Harvard has paid $100 million for the 202-unit Vara apartment complex in The Mission district of San Francisco, more than twice the $40 million San Francisco-based Avant Housing LLC says that it cost to build the project, excluding land, architectural services and other incidental expenses.

[contextly_sidebar id=”e47b21d3076d1a7e995ceeba58b29058″]Avant is the joint venture of San Francisco developers TMG Partners and AGI Capital and has funding from the California Public Employees’ Retirement System.

Eric Tao, Avant’s managing principal and chief investment officer for AGI, said the arrangement with CalPers promotes specific behaviors. “Our deal with CalPERS is highly incentivized for us to sell properties sooner rather than later,” Tao said. “Some of the proceeds from the sale are then re-allocated to us for future development opportunities.”

The partnership is targeting a leveraged internal rate of return in the mid- to high-teens, he said.

The sale was first reported in the San Francisco Business Times without a price. Tao did not dispute that the sales price exceeded $100 million and confirmed that $40 million accurately captured the property’s construction cost.

The Vara apartment complex is located at 1880 Mission St. and has been open for business for one week.

“The Vara complex was not publicly marketed. We only selectively contacted a certain number of potential buyers that included REITs [real estate investment trusts], pension funds, life companies and private-equity firms,” said Brett Betzler, a director with broker Moran & Co., which sold the property.

Mary Ann King, president of Moran, was also involved in the sale. Moran is based in Irvine and has a regional office in the Financial District of downtown San Francisco. The firm would not comment on the sale price of the property.

Moran also worked with Avant on its sale of 260 5th St. and 900 Folsom St. to Palo Alto-based Essex Property Trust Inc. earlier this year.

Jason Mattox, chief operating officer of Behringer Harvard, said the company liked Vara because they think it will appeal to the echo boomers who are converging on San Francisco and other U.S. metropolitan areas as part of a profound demographic shift that is bringing people from the suburbs into inner cities. “We were attracted to Vara due to its central urban location in the Bay Area with a strong economy and favorable demographics. We believe the property will appeal to young professionals who have been increasingly attracted to employment opportunities in the San Francisco metro area. With its highly desirable location in the Mission District, long renowned for its vibrant culture and artistic spirit, the property is within walking distance of an array of amenities and public transportation options,” Mattox said in an email reply to a reporter’s query.

Behringer Harvard owns one other San Francisco apartment complex, the 179-unit Argenta at 1 Polk St.

Avant is now working to gain entitlements for its next San Francisco development, 260 apartments at 1201 Tennessee St. between 22nd and 23rd streets. “We are figuring that this process could take the rest of this year and maybe into 2014 to work through. The physical cost of construction will be 20 percent to 30 percent higher than Vara,” Tao said.

West Coast Commercial Real Estate News