Essex Buys More San Francisco Apartments

San Francisco skyline The Registry real estate

By Jon Peterson

Essex Property Trust Inc. has paid $96 million, or $653,000 a unit, to acquire the Bennett Lofts complex in the South of Market Street district in San Francisco. The property was formerly known as Q Lofts.

The 147-unit complex is comprised of five buildings and was developed in 2004. Essex would not disclose the capitalization rate, current occupancy or the seller.

According to its fourth-quarter earnings report, Essex acquired 75 percent of the complex, or 113 units, for $73.7 million in December. In January it closed on the remainder. The property has large, open live-work units that average 1,257 square feet. The average monthly rent is $3,028. The property is within walking distance of numerous high-tech jobs centers in the SoMa district and is close to shopping and dining.

It is the second big bet the company has made South of Market. Last year it bought an ongoing apartment development at Folsom and 5th streets, where it plans to build 463 apartments at an estimated cost of $250 million. Initial occupancy is expected in 2014.

At the same time, the State of Wisconsin Investment Board has made a $60 million equity allocation to its third joint venture with the Palo Alto-based apartment landlord. With this latest contribution, the pension fund’s board has now invested a total of $297.5 million in equity with Essex in the last two years.

“Essex is one of [the State of Wisconsin Investment Board’s] best-performing multifamily operating partners,” Vicki Hearing, a public information officer for the pension fund, said in an e-mail explaining the decision to put more money in Essex’ hands.

Wisconsin and Essex each contributed $60 million in equity to the current joint venture, WESCO III, granting each a 50 percent ownership in any properties that the JV acquires. The plan is to leverage the equity with 50 percent debt, creating total investment capacity of $240 million.

The investment strategy for WESCO III is to acquire West Coast apartments in markets where the publically traded REIT already has a presence, including Northern and Southern California and the Seattle metropolitan area. Essex is to both source and acquire the properties.

WESCO III already owns the 264-unit Haver Hill Apartments in Fullerton, which were purchased in November for $45.6 million by the venture, according to the Essex fourth quarter earnings results. The property was developed in 1973. Essex would not give out any other details on the transaction including cap rate, seller and current occupancy.

Wisconsin and Essex formed WESCO I in 2011 when the pension fund and the REIT each invested $150 million in equity. This venture is also buying apartments in markets where Essex has a stronghold. In November it bought the 230-unit Madrid apartments in Mission Viejo for an undisclosed sum. This property was developed in 2000. Rent there is $1,616 a month.

WESCO II was formed in early 2012. The pension fund made an equity investment of $87.5 million. Essex invested the same amount through the issuance of common stock and asset sales. This capital was used to make a seven-year, $175 million preferred-equity investment in Parkmerced, a 3,221-unit rent-controlled apartment complex on Lake Merced Boulevard in San Francisco. It is the city’s largest apartment complex and home to 9,000 people.

West Coast Commercial Real Estate News