By Jon Peterson
Washington, D.C.-based Multi-Employer Property Trust and Chicago-based Golub & Company will be funding all equity to cover the approximately $200 million in development costs to build the Transbay Block 6, a 409-unit apartment complex at 299 Fremont in the South of Market region in San Francisco.
“While we are taking development risk, we do feel very good about the long-term job growth prospects for this part of San Francisco, and we won’t be arranging any construction financing on the project. Now once the property is built and stabilized, we would consider to put some long-term debt on the asset,” says Amy Price, chief operating officer for Bentall Kennedy U.S., a U.S./Canadian real estate investment advisor and property manager who works out of the company’s regional office in downtown San Francisco on California Street. Bentall Kennedy is the exclusive real estate investment advisor to the MEPT.
MEPT is the majority owner of the Transbay Block 6. Golub & Company is the operating partner of the development. The project will start at the end of this year with a completion set for late 2015. The 32-story property will have some street front retail that will be primarily used to serve the residents of the complex.
Price is not concerned about the potential of 4,000 to 5,000 units of apartments that are planned for development in San Francisco in the future. “This amount is not that far off from what San Francisco has done in past cycles. For example, the city had averaged 2,600 units per year from 1998 to 2000. So to go a little higher is not that much of a stretch,” she said.
MEPT is no stranger to funding apartment projects in San Francisco. The investor made a preferred equity investment in NEMA, a 754-unit apartment complex at 14 10th Street in San Francisco. “This project has been well received as we are ahead of our planned leasing schedule. This gives us more confidence about the apartment market in San Francisco,” said Price.
The overall San Francisco apartment market remains very tight. According to the Cassidy Turley Commercial Real Estate Services San Francisco Region Overview for the Third Quarter 2013, vacancy was at 3.6 percent. This represents a slight increase over the 3.3 percent rate that had been in place for the previous six months. This is the first time in five consecutive quarters in which the vacancy has moved north.
MEPT is now looking at three primary property types in which to invest going forward. Apartments, office buildings in either downtown San Francisco or markets on the Peninsula like Palo Alto as well as industrial in either the East Bay or South Bay. The investments can be a combination of core, value-added and development.
MEPT is an open-ended commingled fund with total assets of $5.4 billion. The investor has a national investment strategy, and its investment structure allows for new capital to be placed into the fund continuously.