By Jon Peterson
Walnut Creek-based Sequoia Equities has paid $146 million or $320,000 per unit and $326 per square foot to acquire the 456-unit Avalon Rosewalk in San Jose.
The seller of the property was Arlington, Va. -based AvalonBay Communities.
“Sequoia Equities felt that there was a great opportunity to upgrade the interior units on the property and receive an increase in rents. This rental submarket is very strong with minimal vacancy. Rosewalk’s drive-by location on Capital Expressway and proximity to Highway 87, coupled with its exterior presentation, made us bullish for a long-term investor,” says Patrick Reilly, general partner and vice president of acquisitions for Sequoia.
AvalonBay felt the time was correct to trade the asset. “We have owned this property a long time. It was originally a property controlled by Bay Communities before our merger with them. This is one of the properties that we sold as a way to partially fund on new developments for this year. We are planning $1.4 billion worth of new development projects in 2014 on a nationwide basis. The San Francisco Bay Area remains one of our targeted markets,” says Jason Reilly, director of investor relations for AvalonBay.
The sale of the property is another example in the San Francisco Bay Area of sub 5 percent cap rates on apartment deals. “The cap rate was 4.58 percent on in-place rents, with new taxes and reserves of $320 per unit. On the current market rents, it was a 4.84 percent cap rate,” said Reilly of Sequoia.
Avalon Rosewalk was built in two phases in 1996 and 1999. The occupancy at closing was 95 percent.
Sequoia is planning on making both inside and outside improvements to the property. “The interior renovation includes new midnight colored countertops lowered to waist-level height, which creates more surface and less compartmentalized kitchen, adding stainless steel appliances and white cabinetry with nickel hardware throughout. Exterior-wise, we are adding an outdoor pavilion, which will include features like a built-in barbeque and counter space, fire pit, pizza oven and increased outdoor seating,” said Reilly of Sequoia.
Sequoia acquired Avalon Rosewalk with two other tenant-in-common partners. “This structure refers to how we decided to take title in concurrent ownership with our partners. This allows our partners to hold unequal interest in the real property. We are not disclosing our other partners at this time,” said Reilly of Sequoia.
AvalonBay continues to have a major presence in the San Francisco Bay Area. Through the end of 2013, the publicly traded REIT owned a total of 1,692 units in San Jose, 2,268 in Oakland/East Bay and 1,264 units in San Francisco according to a document from its Web site. The occupancy of the total portfolio in the region was 96.3 percent.