A 28-unit San Mateo apartment complex with bayfront access has sold for not quite its $6.3 million asking price, or $225,000 a unit.
The capitalization rate, or yield, at the time of sale was 5 percent.
The 1521 Lago St. complex has “incredible views” of the San Francisco Bay and is full of the “young, highly educated and mobile workforce coming to the Bay Area and working for tech companies,” said Anton Qiu, a principal in San Francisco for TRI Commercial/Corfac International. The project was 100 percent leased at sale.
Today’s tenant mix is similar from Sunnyvale to San Francisco, he said: “They are not ready to be homebuyers or high-priced condo owners yet.”
The seller, 1521 Lago Street LLC, is a partnership with local and offshore Asian investors that had owned the property for more than eight years. The buyer, La Sanda LLC, is a local multifamily landlord. Qiu represented buyer and seller in the transaction.
The complex is within easy walking distance of the Marina Plaza Shopping Center, where tenants cater to daily-life needs including two bank branches, a delicatessan, a hair salon, a barber and a dentist amidst a mix of Asian and Mexican food restaurants.
The sale, while relatively small, Qiu said, is indicative of the market: multiple bidders offering strong prices.
Few Peninsula apartments are selling because for-sale inventory is exceptionally low. Banks have cleared most of the bad debt and owned real estate from their books, he said. In the last three years, he has sold approximately $200 million in bank notes and bank-owned property. But that business is largely behind the market, and brokers are scrambling for product.
The sellers who are testing the waters want top-value prices. “Some of the REITs have bought at sub-4 [percent] cap rates with the expectation that they can rollover rents to a much higher number,” Qiu said. At the San Mateo project, the landlord increased rents 10 percent at the beginning of the year and did not suffer occupancy loss.
Historically, investors accepted yields at current levels only on prime multifamily properties. They are pushing into new territory because they believe alternatives such as U.S. Treasuries are poor choices and that apartments are less risky than other assets. “Those are Pacific Heights numbers, not suburban numbers,” he said.