Chicago REIT Buys More Peninsula Apartments

By Sharon Simonson

Chicago-based Equity Residential, a huge owner of U.S. apartments, has acquired a 241-unit, two-tower complex in downtown San Mateo and plans a major renovation.

The Townhouse Plaza and Gardens is at least the third significant Bay Area acquisition in the last year for the real estate investment trust, which counts the San Francisco region as one of its seven core markets nationwide.

Equity bought the former Landmark condo complex in Daly City and the 1,812-unit Woodland Park Apartments in East Palo Alto in the final three months of 2011.

The San Mateo property has a 154-unit mid-rise building and an 87-unit high-rise tower with 16 stories and is the tallest apartment building on the Peninsula, according to San Francisco-based Arroyo & Co., whose brokers represented the seller, an entity controlled by San Mateo real estate manager and investor Westlake Realty Group Inc.

“It had been coveted and pursued for many years by a range of major operators but had not been for sale in decades,” said Nathan Blair, an Arroyo broker who helped to represent Westlake. “Not surprisingly, we had a number of significant groups tell us it was the most appealing opportunity they had seen in California this year or in some cases several years.”

Other Arroyo brokers who participated in the transaction were David Silver, Barrett Bass and Ryan Wagner.

Originally constructed in 1964 and 1972, the property includes one-, two- and three-bedroom units that average approximately 1,025 rentable square feet. Common area amenities include two managers’ offices, two swimming pools, two community rooms and separate concrete parking structures.

A range of major buyers surfaced to make a run for the property, Blair said, including high net-worth private groups, domestic and foreign funds and REITs.

The property is within walking distance of the downtown San Mateo Caltrain station and is adjacent to a prosperous single-family neighborhood.

Equity bought Daly City’s former Landmark condominium complex with 95 units in September 2011 and is now calling it 88 Hillside. The company estimates the total capital cost of buying and stabilizing the complex at $39.5 million in its latest annual report.

In December 2011, it acquired the 1,812-unit Woodland Park Apartments in East Palo Alto from lender Wells Fargo & Co.

Equity does not disclose the purchase price of its assets.

The apartment landlord targets Boston, New York, Washington, D.C., South Florida, Southern California, San Francisco and Seattle. As of June 30, Equity directly or indirectly owned all or a portion of 421 properties with 120,355 apartments in 14 states and the District of Columbia.

Over the past several years, Equity Residential has repositioned its portfolio, selling more than 127,000 apartments primarily in its non-core markets for an aggregate sales price of approximately $10.4 billion, while acquiring more than 43,000 apartments in its core markets for approximately $10 billion. It also began approximately $2.7 billion of development projects in its core markets.

At the end of 2011, the company started work on the 444-unit Domain complex in San Jose, a $154.6 million project that Equity owns along with an institutional partner. It expects to complete construction on the project at the end of next year and to have it leased five quarters later. Equity’s share represents 20 percent.

In a report filed with the Securities and Exchange Commission on Aug. 2, Equity said it believes it is well positioned to compete in the current environment. “With the exception of the Washington, D.C. and Seattle market areas and the San Jose sub-market area of San Francisco, little new multifamily rental supply will be added to our markets over the next several years,” it said.

At the end of 2011, Equity owned 37 Bay Area complexes with 8,628 units, 7.1 percent of its total portfolio but 7.3 percent of its net operating income. By way of comparison, the company’s largest market as measured by net operating income is the New York City metropolitan area, which has 7 percent of the company’s apartment units but produces 13.3 percent of its income.

West Coast Commercial Real Estate News