A Tustin apartment complex just sold for $43 million with one of the lowest expected return rates from rents seen here lately.
Carmel Partners Inc., a San Francisco-based real estate investor with an Irvine office, bought Park Place, a 246-apartment complex. The deal is Carmel’s third big apartment buy in Orange County and its first in Tustin.
The 5.6-acre complex is on Main Street next to Santa Ana’s Prentice Park, near the intersection of the Santa Ana (I-5) and Costa Mesa (55) freeways.
The seller was Park Place Fund Ltd., a Southern California-based family partnership that had owned the apartments since they were built in 1969.
The apartments sold for about $175,000 each, or about $197 per square foot. That’s just a touch higher than the $171,000 per unit average seen for local apartment deals in the past year, according to the latest figures from the Newport Beach office of Marcus & Millichap Real Estate Investment Brokerage Co.
Other larger deals in South County have traded closer to $250,000 per apartment or higher.
Some apartments once eyed for possible conversion to condominiums have gone for more than $300,000 per unit.
Low Cap Rate
What stands out for the Tustin deal is its capitalization rate,the expected near-term return from rents. It was less than 4%, according to Ric Russell, managing partner of Northern California’s NAI BT Commercial, who represented both parties in the sale.
The low cap rate “reflected the seller’s very conservative operation of the property,” Russell said.
It didn’t scare off bidders.
The complex got about a dozen offers from prospective buyers looking at it for potential rent increases, he said.
There are 206 flats and 40 townhouses at Park Place. All have two bedrooms and one and a half bathrooms.
Rents at the complex now run from $1,200 to about $1,450, according to real estate Web sites.
The county average is about $1,450.
Even with the relatively low rates, there are more empty apartments at Park Place than the county norm, according to Russell. He didn’t say what the vacancy rate is.
Marcus & Millichap put the vacancy rate for all OC apartments at 3.2% at the end of 2006.
Carmel Properties plans to renovate the inside and outside of the complex. It also plans a more aggressive leasing push, which should allow it to increase rents and bring the complex closer to 95% full.
The Park Place acquisition keeps with Carmel’s strategy of buying and fixing up apartments.
Since starting operations in 1992, Carmel has bought or developed more than 40 complexes with close to 13,000 apartments. Local complexes include Arbors at Santa Ana and Briarwood Square in Stanton.
Carmel has raised close to $615 million in equity in two investment funds since late 2003, according to its Web site.
The company’s strategy is to hold investments for five to 10 years, according to Russell.
Recent Deals
A number of sizable apartment deals have been closing in the county in recent months.
Last month, Matteson Cos. paid $46 million, or about $188,000 per apartment, for the 245-unit Waterstone at the Grove complex in Garden Grove. Pacific Property Co. was the seller.
In December, Trammell Crow Co. sold a 278-apartment complex in Orange to UBS Financial Services Inc. for $91.5 million. The apartments were set to be sold as condos by Hovnanian Enterprises Inc.’s K. Hovnanian Homes. But the shifting housing market conditions changed that plan.
Also in December, Legacy Partners Inc. of Foster City sold its 2701 Main Street apartment and shops project to Camden Property Trust of Houston. At Main Street and Jamboree Road, the 290 apartments complex is seeing construction again under the new owners, after a nearly yearlong delay.
