Edgewater’s $115M price shatters records

$730 per square foot in Mission Bay

By J.K. Dineen
San Francisco Business Times

A Colorado-based apartment real estate investment trust paid $115 million for a recently completed Mission Bay apartment complex, a deal that shattered price-per-unit records for a major multi-family property in San Francisco .

UDR, formerly known as United Dominion Realty Trust, shelled out $595,855 per apartment, or $730 a square foot, for the recently completed 193-unit Edgewater Luxury Apartments at 355 Berry St., north of the channel in Mission Bay.

The seller was the apartment developer Urban Housing Group, which spent five years entitling and constructing the property before opening it in August 2007. Urban Housing fully leased the building in four months, beating projections by five months.

While a few smaller boutique apartment buildings on Nob Hill have traded for a higher price per unit in recent years — the 34-unit Park Lane Apartments across from Grace Cathedral sold for $38 million — the Edgewater deal represented a record for a larger institutional quality multi-family building, according to Stanford Jones of Marcus & Millichap’s multi-housing group in Palo Alto, who brokered the transaction along with Sal Saglimbeni and Phil Saglimbeni.

Jones said a dozen strong offers came in on the Edgewater. He said the deal demonstrated that there is “little or no price erosion due to the global influences of the credit crisis and slowing economy” for the rare top-shelf new apartment buildings being built in San Francisco .

The Edgewater is one of only a small handful of new market-rate apartment projects that have risen in the past five years; Urban Housing has another project, 555 Mission Rock, under construction, and AvalonBay is building at 355 King in Mission Bay.

“We all talk about the debt crisis and equity drying up, well this sale just blew right through all that,” said Jones. “There was no hesitation whatsoever in most of the buyers.”

The deal suggests that San Francisco ‘s rental market is benefitting from a investors who are looking to shift assets away from cheaper, less supply-constrained markets seen as more vulnerable to the woes brought out by dramatic rise in foreclosures seen across the nation.

UDR, for example, recently sold off more than 25,000 apartments for $1.7 billion, mostly “Class B and C” units in Arkansas, Texas, South Carolina, and other states with cheaper land and more relaxed land use policies than San Francisco.

Matthew Akin, a senior vice president in charge of acquisitions for United Dominion, said he could not comment on the Edgewater deal “because we have not publicly announced the transaction.”

But he said that the Bay Area is exactly the sort of “low-affordability, supply-constrained” market that UDR is targeting with the $1.7 billion raised through the portfolio sale earlier this year. He said he expects rental growth rates in markets like San Francisco , Seattle and Washington , D.C. , to “outperform the more affordable markets over the long term.”

For Urban Housing Group, a subsidiary of Marcus & Millichap Co. formed five years ago, the sale of Edgewater marks the first project the developer has brought through the entire cycle — from land acquisition to entitlement to construction to leasing, and finally, to sale.

“We’re thrilled with the outcome,” said Daniel Deibel, vice president of development for Urban Housing Group.

“When new product comes along, the institutional buyer will pay a premium not to have to go through the brain damage of going through the development process,” he said.

Rents in the city surged 14.5 percent in 2007 to an average of $2,285, according to the Novato research firm RealFacts. Since 2004, Bay Area rents have climbed 23.7 percent.

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