A bet on Silicon Valley’s apartment market has paid off handsomely for Newport Beach-based Lyon Communities.
The apartment developer and owner, which has about 11,000 units in its portfolio, last week announced the sale of one of its newer properties, Apex Apartments, a 366-unit complex in Milpitas.
Essex Property Trust Inc., a Palo Alto-based multifamily investor that’s the largest owner of apartments on the West Coast, paid $150 million for the complex.
That works out to roughly $410,000 per apartment—more than $100,000 per unit higher than any larger apartment complex to trade hands in Orange County in over a year, according to brokerage data.
The complex was one of 10 properties that Lyon Communities owned in the Silicon Valley and its only one in Milpitas.
Apex was valued at about $55 million by Milpitas city officials when Lyon Communities broke ground two years ago, making it among the first new apartment projects to move ahead in the city since the last recession.
Essex officials cited the project’s location near high-paying jobs in North San Jose, as well as its proximity to a new train station and other mass transit hubs, among the reasons for its purchase.
The project, a few blocks from the 1-million-square-foot Great Mall, opened about a year ago and got fully leased up this year. Rents there have been running about $2,300 per month for one-bedroom apartments.
Another local apartment developer, Aliso Viejo-based Shea Properties, has its own complex in Milpitas nearing completion. That 200-unit project, called Ilara, is being built in conjunction with Los Angeles-based Resmark Apartment Living and is expected to open this fall.
Opportunistic Seller
The Apex sale appears to be one of the larger, and more profitable, sales for privately held Lyon Communities in recent years.
The company started up more than 25 years ago and is a venture between Gen. William Lyon, founder of longtime area homebuilding company William Lyon Homes, and Frank Suryan Jr., chairman and chief executive of the apartment developer and owner.
Ownership
Gen. Lyon and his family are said to still retain a 50% ownership interest in Lyon Communities, while Suryan owns the other 50% stake in the company, which is said to have a market capitalization of about $2 billion.
The company has apartment properties in California, Colorado, Florida and Georgia. Its portfolio had an occupancy rate of about 94% as of last year.
Suryan told the Business Journal last year that the company strove to be an “opportunistic seller” for its properties.
The just-sold Apex project features a number of high-end features similar to Lyon Communities’ newest apartment complex in Orange County, a development in Santa Ana called The Marke.
That 300-unit complex opened this year at MacArthur Boulevard and Main Street in the South Coast Metro portion of the city.
The Marke has two bowling lanes, an outdoor sports bar, pet grooming space, and a resort-style swimming pool, among other features.
Skyline
The project sits a few blocks away from OC’s tallest residential complex, Skyline at MacArthur Place, whose two towers run 25 stories each. That 349-unit apartment complex is owned by Essex, which acquired a 50% interest in the project in 2010 and two years later bought the remainder in a deal that valued Skyline at $170 million, or roughly $487,000 per apartment.
Essex has made a series of individual OC acquisitions in the past four years, including newly built complexes in Anaheim and Irvine, but more local deals may not be in the cards in the near term, officials said this month.
“We have passed on some deals in Southern California,” Essex Chief Executive Michael Schall said during his company’s quarterly earnings call with analysts in early August.
Looking For More
The company’s looking at more deals in Northern California, but not necessarily in the priciest markets there, Schall said.
Essex is looking to find “opportunities that might be in a B+ city near a transit-oriented site,” Schall said prior to the purchase of Apex.
The company said it expected to complete more than $400 million in acquisitions this year. It made about $217 million in buys in the year prior to the Apex deal.
