UDR and MetLife Plan $317MM Apartment JV in San Francisco

399 Fremont San Francisco The Registry real estate

By Jon Peterson

Denver-based UDR and Morristown, N.J.-based MetLife had formed a $317 million joint venture to develop the 477-unit apartment complex located at 399 Fremont in San Francisco.

The structure of the venture calls for UDR to hold a 51 percent ownership stake and MetLife 49 percent. There is a total of $143 million of equity in the deal. This will be covered with $73 million coming from UDR and $70 million from MetLife. The rest of the project will be funded by a $174 million construction loan.

“San Francisco remains one of the strongest apartment investment markets in the country for us, and we think this will continue for a while. We have experienced this first hand with strong leasing at our 315-unit project called Channel Mission Bay located at 185 Channel Street in the Mission Bay area of San Francisco,” says Harry Alcock, senior vice president and chief investment officer for UDR. He worked on the 399 Fremont venture for the company.

He thinks that the economic outlook for the San Francisco market looks good for some time in the future. “I think that the area will continue to show a positive outlook for both job and population growth. I don’t think that our properties would be severely affected by any issues that technology companies might have over the next several years,” said Alcock.

UDR had owned the site at 399 Fremont since January of 2012. At that time its JV partner was San Diego-based Oliver McMillian. UDR bought out this partner from the project in January of this year.

UDR figures that the going in cap rate on the development will be in the range of 5.25 to 5.5 percent. This will be increased to 6 percent once the property has some operating history to go on. The property is expected to be completed in 2016. These returns compare to 4 percent cap rates that many existing properties in San Francisco average today.

The venture between UDR and MetLife at 399 Fremont is part of $3 billion worth of apartments that the two companies have done together on a nationwide basis. These investments include projects in markets like Dallas and New York City.

There is one other project in the works that these two companies could be doing in the future in the San Francisco Bay Area. This is the 160-unit Domain Mountain View in Mountain View. This project is now just a development site. UDR is talking with the city of Mountain View about future development plans for the project. No timetable has been established as to when this project might be started.

In the meantime, UDR has made the decision to exit the Sacramento apartment market. “In general, we look for properties that are located in areas that are showing above average population and job growth and strong rental income. In our opinion, Sacramento did not make the cut. The markets we are looking at for future properties include Seattle, San Francisco, Los Angeles, San Diego, New York City, Boston, Dallas and Washington, D.C.,” said Alcock.

UDR will be selling the 268-unit Foothills Tennis Village in Roseville and the 646-unit Woodlake Village Apartments in Sacramento. Both of these sales are under contract. The Foothills property is expected to have a $33.1 million sales price and an estimated 6.5 percent cap rate. Woodlake Village has an anticipated $48 million sales price and a 6.7 percent cap rate.

Map courtesy of Apple

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