Essex Puts $250 Million into San Francisco Apartments

By Sharon Simonson

Palo Alto-based Essex Property Trust Inc. has acquired two San Francisco housing sites in the bustling South of Market district from a joint venture backed by California pension money.

The seller was Avant Housing, a shared enterprise of San Francisco’s AGI Capital Group and TMG Partners. The AGI-TMG Housing Partners Fund is financed with funding from the California Public Employees’ Retirement System, or CalPERS.

The sites are 900 Folsom St. and 260 5th St. Avant broke ground May 21 on the Folsom Street property, which it valued at $120 million, and projected an August start for the 5th Street project, which it valued at approximately $70 million.

The real estate investment trust plans to finish development of the 463 apartments and not quite 9,500 square feet of shop space for delivery in 2014.

TMG will remain as the construction manager, said Essex spokesman Bryan Hunt. Webcor Builders is the general contractor.

“This is a wonderful opportunity. We have wanted to build in San Francisco for quite some time,” Hunt said. “It doesn’t hurt to have Twitter and Zynga and job growth, and an employee base that is on the younger side and wants to rent.”

Essex estimates the cost of the two developments at $250 million, including the cost of the land. It is not releasing the acquisition price. Essex will have a 55 percent interest in the property via a “co-investment partnership,” according to a prepared statement. It also will earn development, asset and property management fees from an unnamed institutional investor.

“It is a fantastic opportunity. It’s shovel ready; the entitlements are done, and we are ready to go now with no development risk,” Hunt said. “We love the location and the access to Westfield [San Francisco] Centre, downtown, the 260,000 square-foot CityPlace.”

Avant is also building a third San Francisco complex in the Mission. Hunt said Essex is aware of the property.

The purchase brings the real estate investment trust its second San Francisco complex. It bought the 99-unit Mt. Sutro apartments in 2001.

Essex, a West Coast centric company, is expanding rapidly, including its Bay Area presence. It increased its Northern California apartment count by 5 percent, or 410 units, to 8,106 from the end of 2010 to the end of last year. Its Southern California portfolio inched higher to just more than 13,000 units, and its Seattle metropolitan area portfolio increased by 2 percent to 6,108.

This year, the company projects far more significant growth in all three markets based on expectations of job and rental rate expansion. It will add 3,000 apartments and 2,200 single-family homes to its Northern California holdings. The company has assumed an increase of 48,000 jobs in the region in 2012 and expects rent income to rise as much as 9 percent.

In Southern California, it expects to add 5,400 apartments and 5,100 single-family homes in 2012, and in the Seattle metro area, it could add 1,800 apartments and 3,400 single-family homes.

West Coast Commercial Real Estate News