Three apartment complexes here sold for more than $55 million as part of one of the larger local portfolio sales in the past year.
Roy E. Daly & Co., a family owned real estate investor in Kansas, recently sold the complexes here along with another in Rancho Cucamonga.
The $103.4 million deal totaled 575 apartments, or about $180,000 per apartment, according to brokers with the Newport Beach office of CB Richard Ellis Group Inc. who worked on the deal.
The Orange County complexes accounted for 328 of the apartments and $55.4 million, or about $169,000 per apartment.
The deal included the 140-apartment Canyonwoods complex in Lake Forest, which sold for $24.7 million. Two Tustin complexes changing hands were the 124-apartment Pinewood, which sold for $20.4 million, and the 64-apartment Tustin Plaza, which sold for $10.3 million.
Washington, D.C.-based Avalon Bay Communities Inc. acquired Canyonwoods.
Patrick Cadigan, a longtime real estate investor in the Tustin area, bought the two complexes there.
San Diego’s MG Properties Group paid $48 million for the largest of the four, the 247-apartment Sunridge Pines in Rancho Cucamonga.
The deal is among the largest portfolio sales of older complexes here of late. Individual complexes—particularly newer ones—have traded hands at a decent clip and at higher prices in the past year
The priciest recent sale is believed to be Irvine Company’s buy of the 884-apartment Gateway complex in Orange, next to Anaheim’s Platinum Triangle. The Gateway, built in 2008, sold last October for an estimated $230 million-plus.
Other big sales include last year’s $70 million buy of 1818 Platinum Triangle in Anaheim, and the $128 million deal for the Skyline Towers in Santa Ana. Those complexes were built as condominiums during the boom.
Newer complexes have been selling at prices of more than $250,000 per apartment.
That’s nearly 50% more than what the 1970s-era Roy E. Daly complexes went for.
The Rancho Cucamonga apartments were built in 1988 and went for about $194,000 each.
Regardless of age, “There’s a lot of investment capital looking for (apartment) deals,” said Ray Eldridge, a broker with CB Richard Ellis who worked on the Roy E. Daly portfolio sale.
Low interest rates have helped spur apartment deals, as have strong fundamentals in the local market, said Eldridge, who worked with colleagues Bob Patterson, Michelle Jefcoat in the Newport Beach office of CB Richard Ellis and Tyler Anderson in the brokerage’s Phoenix office.
“The market here has held up great,” Eldridge said.
Peak Prices?
If the latest transaction is an indication, big apartment deals still are getting done at prices not too far off the peak of the market.
That has one of the area’s largest apartment investors and developers a little concerned.
“I’ve seen transactions (here) that are a little odd,” said Michael Hayde, chief executive of Irvine’s Western National Group, the county’s second-largest owner of apartments behind Newport Beach’s Irvine Co.
Hayde, whose company owns some 10,000 apartments, raised a new fund totaling about $250 million several years ago hoping to buy complexes on the cheap.
So far, Western National has spent only $60 million, all of that in a single purchase, said Hayde, speaking at a recent commercial real estate forum sponsored by the California State University, Fullerton’s Mihaylo College of Business and Economics.
“We’ve hardly spent anything,” Hayde said.
Last year, Western National bought the Charter Apartments, a 403-apartment complex in Irvine off Jamboree Road. The apartments reportedly sold at a little less than $150,000 each.
Hayde said he was surprised that capitalization rates—the expected initial return from rents—still are running at 4% to 5.5% for most deals in the area. When the last fund was raised, he expected rates closer to 9%.
“People are buying Southern California apartments like they’ll never be built again,” Hayde said.
In the case of the recent portfolio sale, the first-year capitalization rate is in the 5% range for the four complexes, Eldridge said.
Landlords appear to be banking on modest rent increases as justification for their buys.
Apartment tenants can expect to see rent increases of 3.7% this year, according to the latest national report from Marcus & Millichap Real Estate Investment Services Inc.
Average monthly rents are projected to end 2011 at $1,535 per month, according to the brokerage’s data. Vacancy rates could end the year at about 4.4%, according to the report.
