By Jon Peterson
Beverly Hills-based Kennedy Wilson expects to earn nearly a 6 percent going-in yield on its purchase of the 188-unit Montelena Apartments in Hayward.
“Had this same kind of property been situated in San Francisco or Silicon Valley, I would think that the cap rate would have been in the low 4 percent range,” said Kurt Zech, senior managing director in the KW Multifamily Management Group in its San Francisco office. “This is why we like properties in some parts of the East Bay: We can find institutional quality in good markets and still achieve a higher return.”
Kennedy Wilson paid $34 million for the complex, placing $27 million in fixed-rate financing with Freddie Mac with an interest rate of 3.5 percent for 10 years. The landlord plans to invest an additional $4 million to renovate the property.
In the last 10 months Kennedy Wilson has acquired three East Bay apartment complexes. The company achieved a 5.7 percent capitalization rate, or first-year yield, on the 178-unit Regency Tower Apartments in Oakland, bought in November 2012, and a 6 percent cap rate on the 544-unit Waterford Apartments in Hayward, acquired last June. (The Waterford Apartments are now called The Bridge.)
Kennedy Wilson favors properties with good transit adjacency, and the Hayward complex is across the street from the South Hayward BART station. Kennedy Wilson positioned the latest Hayward acquisition as a “complementary investment” to its earlier purchase of The Bridge.
The anticipated 5.85 percent to 5.9 percent cap rate on the Montelena complex is based on the property’s current net operating income. “Over the past 12 months the rents for apartments in Hayward have increased by 5 percent to 6 percent. For this year the rents should move up another 4 percent to 5 percent,” Zech said.
Kennedy Wilson acquired Montelena from San Diego-based Fairfield Residential. The seller chose not to comment for this story. Mark Leary, a principal with ARA Real Estate Investment Services in its San Francisco office, represented both buyer and seller in the transaction. Leary declined comment.
Fairfield owned the property since 2005. The complex, originally constructed in 1987, was 95 percent occupied at the time of closing.