A 124-unit apartment complex over a Whole Foods store in Marin County acquired for less than replacement cost by The Matteson Cos. could be converted back to condominiums if market conditions dictate.
San Mateo-based Matteson bought the Millworks, an urban midrise apartment and retail project located at 900 Reichert Ave. in the Old Town section of Novato, for $67 million. That equates to not quite $160 a square foot for the 421,000-square-foot property, which includes a nearly 40,000-square-foot Whole Foods and a three-level, 438-space parking garage.
The deal was completed with 40 percent equity from the buyer and 60 percent debt. The seller was Pleasanton-based Signature Properties.
“Marin County is a very difficult market to build new apartments in. The development costs are high, and it’s hard to get new projects approved. This makes it attractive for us to own a property in this region,” said John Bellack, president of JB Matteson Inc., a subsidiary of the Matteson Cos.
The property was completed in 2010 as condos. Matteson expects to find good demand from both baby boomers and echo boomers, who are generally the children of baby boomers. “The baby boomers are looking to downsize, and echo boomers want to rent for their first housing outside of college,” Bellack said.
At the time Matteson acquired the property, occupancy stood at 99 percent. “The overall occupancy for class A apartments in Marin County is 97 percent,” Bellack said. “The market is very tight and clearly an owners market now.”
Matteson would not comment on the capitalization rate for the property.
Jeffrey Weber, a senior managing director for real estate investment banker Eastdil Secured LLC in San Francisco, and Jason Flynn, an Eastdil managing director in the city, represented the seller. Neither responded to a request for comment.
Whole Foods is in the Millworks project on a long-term lease and occupies much of the ground-floor retail space. One benefit for renters is that groceries and prepared foods from Whole Foods can be delivered directly to residents of the apartment complex at their request.
Millworks is Green Point Rated by Oakland-based nonprofit Build It Green. It has a living roof, dedicated bike storage, passive solar heating attributes, energy-saving windows throughout, Energy Star appliances and dual-flush toilets.
Matteson invests in real estate for private capital and institutional sources. It acquired the Millworks on behalf of a private capital source. The company wants to invest $250 million to $300 million this year in 1031 exchange deals for its capital sources.
It is targeting three major West Coast markets: the San Francisco Bay area, Southern California and Seattle. The company’s risk tolerance spans the spectrum from lowest-risk, or core assets, to value-add properties, where the buyer seeks to reposition properties in the marketplace or to address capital investment or management deficiencies.
Matteson manages a portfolio valued at more than $1 billion in apartments, office and retail assets.