By Jon Peterson
Pension funds can’t seem to get enough of Bay Area apartments.
The State of Wisconsin Investment Board has allocated $50 million of new capital to its Wesco I joint venture with Palo Alto-based Essex Property Trust Inc. The mission is to buy West Coast apartments. Using funds they committed to the venture a little more than a year ago, Wesco in November acquired two Fremont complexes with 360 units for $53 million.
At the same time, the Los Angeles County Employees Retirement Association has made a $29.4 million equity investment in a San Francisco Bay Area apartment complex now controlled by Los Angeles-based CityView, an institutional investment firm focused on urban real estate.
CityView invested $9.8 million in equity in the property. Henry Cisneros, former secretary of the U.S Department of Housing and Urban Development, is CityView’s executive chairman.
John McClelland, principal investment officer for real estate for the Los Angeles pension fund, declined to give the Bay Area property’s exact address because the purchase transaction has not yet closed. But the investors are acquiring a 143-unit complex via a deed-in-lieu of foreclosure, purchasing a $32 million loan against the property for $27.6 million.
The apartments, which are on a half-acre site, were built to condo specifications and are part of a mixed-use complex with 15,400 square feet of ground-floor commercial space. The project is about 98 percent developed.
Wisconsin and Essex each allocated $100 million to their Wesco joint venture in the first quarter of 2011. Wisconsin’s new commitment was matched by a new $50 million commitment from Essex. Both the pension fund and Essex must approve any acquisition or sale by the joint venture. The investor targets properties in markets where Essex already has a stronghold: Northern California, Southern California and the Seattle metropolitan area.
With the first round of equity, which Wesco leveraged with 50 percent to 60 percent debt, the joint venture bought six properties with 2,013 apartments.
That included the 160-unit Briarwood at Central Park at 4200 Bay St. in Fremont and The Woods at 40640 High St., also with 160 units and also in Fremont. The JV paid $27.8 million for Briarwood and $25.2 million for The Woods, said Barb Pak, director of investor relations for Essex. Both properties were built in 1978.
The other apartments are in Southern California and Redmond, Wash.
The Los Angeles pension fund hopes to achieve a 12.4 percent return on equity based on an 18-month holding period for the Bay Area apartments. At the conclusion of that period, LACERA can sell or buy CityView’s interest and hold the apartments long term with an expected cash-on-cash return of 6.1 percent.