Hat tip to Kelly Bennett for sending this along, from marketwatch.com:
Equity Residential today announced that the company has acquired Vantage Pointe in San Diego, CA for $200 million.
Vantage Pointe is a 40-story high rise featuring 679 apartment units, 26,425 square feet of retail space and 968 underground parking spaces. The purchase price values the apartment units at approximately $291,000 per unit and $348 per square foot of rentable apartment space.
The property was developed as a condominium project and completed in 2009. Amenities include a clubhouse, rooftop pool and sundeck, fitness center and theater. Equity Residential purchased 100% of the units, which are being operated as rentals and are currently approximately 22% occupied. The company has begun a comprehensive marketing and leasing campaign and expects a year-three stabilized yield of approximately 7%.
“The acquisition of Vantage Pointe is another example of the opportunities we have seized this year to add high quality, well-located assets to our portfolio at prices well below replacement cost,” said David J. Neithercut, Equity Residential’s President and CEO. “And, as we have shown with the success that we have had at our 425 Mass property in Washington, D.C., we are able to tackle large, complex deals to create long term value for our shareholders.”
Equity Residential now owns and operates 14 properties, consisting of 4,963 apartment units, in the San Diego market.
Equity Residential is an S&P 500 company focused on the acquisition, development and management of high quality apartment properties in top U.S. growth markets. Equity Residential owns or has investments in 479 properties located in 21 states and the District of Columbia, consisting of 134,484 apartment units.
(The previous owners had a $210 million loan on it.)
What are comparables for condos nearby running at? ($/sqft)
They need this broker to move that product:
http://stuffaboutminneapolis.tumblr.com/post/1182065623/beat-it-flick-it-choke-it-rub-it-real-estate
I believe that a 7% yield is very obtainable for them…paid to wait until they can unload them individually for a $100k profit each…if only I had $200mm laying around.
So, it signals sd housing market bottom? if not exact, it is near?
Some prices are up on their site. Looks like $1700 a month for a 614 sq ft one bedroom that they just paid $348*614 = $213k for. I wish I could rent a $213k house for $1700 a month!
I’d imagine that a typical 1200 sqft 2bed/2bath unit rents for about $2400/month in that building (I’m being generous). So, if they paid $348/sqft, then that equates to a GRM of about 14.5x. That seems WAY too high. I would have expected about $275/sqft in a transaction like this. The fact that the lenders – who probably did 80% loan-to-cost financing on this – are “only” losing $10 million on this pig (also) suggests that the buyers are paying too much. But… if Equity Residential’s cost of capital is low enough then maybe it won’t be a complete disaster. But this looks like an auction winner’s curse situation to me. But it’s good for downtown SD sellers because it takes a huge block of condos off the potential selling market.
Sounds like a wishing price. In that price range there are a lot of 2 and 3 br units/houses available in La Jolla, Hillcrest, Clairemont, and other nearby areas.
It’ll be interesting to see if they can rent most of their units at that price. I’m guessing most people that can afford $1700 a month will want more space…
Maybe this will work but my gut says that it’s going to be really difficult to keep all 679 units rented. Of course if this was purchased with a near 0% loan you wouldn’t need that many units filled to break even.
Makes me think of the article awhile back about downtown condo owners complaining about “downtown noise”!!! LOL
Susan didn’t tell them about that?!
Like Hu Flung Pu, I did a “back of the envelope” GRM calculation and came up with 12-13 using favorable assumptions.
I just don’t get it. It looks like knife catching to me
This guy is is famous for his ” structured finance” deals.
The typical scenario is he borrows the money from the banks at 1.5 pts above Libor, currently under 2%, has a 3 year deal, with all kinds of benchmarks and provisonal scenarios that need to be met to determine the final sale price.
Basically, he overpays up front on paper, ( helps the banks) goes on CNBC for the next 3 years cheerleading how the commercial markets are on fire, and when it does not become a self-fullfilling prophecy , he has the bank/PE partners share in the pain, and the deal is reset for another 3 years.
This guy and his “bond floats” are a joke. He has access to capital, both political and banking, and is very good at creating “moat” to keep the crush of equity capital away until he gets his deal on his terms.
Well as a well managed building they can demand higher rents. The location still sucks, but people would rather know they are renting from someone who is not facing foreclosure. Oliver McMillan rents similar sized units throughout downtown around those prices. However they are in better locations. I expect there may be some really low financing on this.
Condo sales in 92101 since June 1, 2010:
# of sales: 286
Avg. SP: $396,668
Avg SF: 1,069sf
Avg $/sf: $371/sf
Avg DOM: 84
SP/LP: 97%
(from MLS – there were none marked as being built in 2010, and 13 were built in 2009, avg $505/sf)
Doesn’t the 286 sold sound like incredible production? There are 443 actives, 123 pendings, and 112 contingents currently.
Hmmm, they bought those condos for about a 9% discount to market? That doesn’t sound like a killer deal. It’s a deal, but better could be found.
He paid too much, IMHO. Not sure what they were thinking.