Waterton Raises $1.5B Apartment Fund, Looks for Assets in the San Francisco Bay Area

Bell Partners

By Jon Peterson

Chicago-based Waterton has set is sights on growing its apartment portfolio, and the company has shored up a $1.5 billion equity raise to achieve that goal. With a 65 percent leverage, Waterton is eyeing total capitalization of around $4.5 billion for its Waterton Residential Property Venture XIV, which will plan to invest in markets such as the San Francisco Bay Area and Seattle.

“Downtown San Francisco is a market that we like on a long-term basis. We are fully aware that this area has seen a significant drop in rents since the start of the pandemic, but [we] still believe in the region going forward and recovering,” says Peter Kuzma, senior vice president for Waterton.

He recognizes that certain submarkets across the Bay Area have been affected more than others. “The new construction units in the SoMa submarket have been hit the hardest. A one-bedroom unit before the pandemic was rented for $3,500 per month. The rents range now from $2,600 to $2,700 per month,” said Kuzma.

Waterton has already acquired one asset for the new fund in San Francisco. It acquired the 154-unit Delphine Diamond complex within the city limits of San Francisco for $36.25 million, or just over $235,389 per unit, according to public records.

“We feel very fortunate that we were able to acquire the suburban garden apartment complex within the city limits of San Francisco. This is a rare opportunity for the marketplace,” said Kuzma.

Waterton has closed on two transactions in Southern California for Venture XIV. These are properties located in downtown Los Angeles and San Pedro.

For the greater Bay Area, Waterton is looking for assets in a variety of markets. These would include places like within San Francisco, the Peninsula, San Jose and the East Bay including Oakland.

Seattle is another market in which the fund manager would like to acquire properties, and it sees a lot of opportunities across the Puget Sound region. However, there are some aspects of the market that make it challenging to make acquisitions there quickly. “Seattle is an area that we are looking at. Our current opinion is that it is difficult to buy in [that market] with a lot of capital chasing transactions, but we do like the economy and job growth that is being created there. This region is also being affected by the pandemic. As an example, units in South Lake Union have rent concessions with property owners offering two to three months of free rent,” said Kuzma.

Waterton does have a history of acquiring debt that is secured by apartments and would like to consider those deals, but finding the right one has been a fleeting proposition. “We are hopeful to be able to find some debt opportunities for our new fund. We have not seen this yet. I think a major reason for the is that the developers in this cycle have been very well capitalized as compared to the previous investment cycles.”

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