Pacific Gulf Properties Inc., continuing to remake itself, is close to a deal in which it will sell its 1,631-unit family-style apartment portfolio for roughly $120 million to an unnamed buyer, the second major sale by the Newport Beach-based company in the past month.
In June, Pacific Gulf surprised many real estate observers by agreeing to a $929 million deal to sell its 15 million-square-foot industrial portfolio to CalWest Industrial Properties LLC, a joint venture of the California Public Employees Retirement System and RREEF, a San Francisco-based investment and pension-fund advisor. The 72 industrial complexes that make up that portfolio are in California, Washington, Nevada, Arizona and Oregon.
Glenn L. Carpenter, chairman and CEO of Newport Beach-based Pacific Gulf, said he expects a final deal on the family-style portfolio to be reached in the next two weeks or so. The sales are designed to allow the company to focus on its active-senior apartment portfolio, he said.
Last week, Pacific Gulf paid $3.9 million to Shea Homes for 5.24 acres of land in Laguna Niguel, where the company plans to begin construction later this year on two apartment complexes for active seniors.
Pacific Gulf, a real estate investment trust, has been asked by CalPERS and RREEF to stay on and oversee management of the industrial portfolio, a prospect Carpenter said his company is mulling over. Additionally, Pacific Gulf also likely will continue to identify and develop properties for the new owners, including opportunities in Rancho Santa Margarita and the Seattle area, Carpenter said.
The family-style apartment sale, to a buyer Carpenter declined to identify, includes one Orange County property, the 406-unit Applewood Apartments in Santa Ana. The portfolio also includes properties in eastern Los Angeles County and the Inland Empire.
Once the industrial and family-style apartment portfolio sales have been completed, Pacific Gulf will continue to expand its 3-year-old presence in the active-senior apartment niche, which focuses on communities designed for people 55 and older. The company owns and manages 1,438 units in eight projects. It also has a 244-unit complex under construction in Temecula, a 259-unit project under construction in Anaheim Hills and a 166-unit complex under construction in Sacramento. Further out, the company recently closed escrow on a parcel in Laguna Niguel where it plans to build roughly 200 units.
“That (niche) has been pretty successful for us,” Carpenter said. “So we’re actively pursuing and continuing work on the senior apartment side.”
As for the industrial portfolio sale, Carpenter said the opportunity was too good to pass up.
“We had not been looking to sell anything and in fact we were having a very good year and continue to have a very good year,” Carpenter said. “But, as you might well be aware, the private sector and public sector value of real estate are significantly different.”
The $929 million price tag reflects a more accurate evaluation of those holdings, which in the public markets are being valued at roughly 20% to 25% less, Carpenter said.
“Our job as a public company is to maximize value to our shareholders, and I couldn’t be assured that a year from now or two years from now that if I had turned down this offer I wouldn’t have deprived the shareholders of an opportunity to really capitalize on getting full value for their investments,” said Carpenter, who owns roughly 2.5% of Pacific Gulf.
For RREEF and CalPERS, which had set a goal of acquiring several million square feet of industrial in prime geographic markets, the deal allowed the partnership to quickly accomplish what otherwise might have taken a couple of years, said Scott Stuckman, RREEF’s vice president for acquisitions in Southern California.
“It was a fortuitous situation,” Stuckman said. “It was a real good match-up between Pacific Gulf and ourselves.”
The industrial and family-style apartment transactions are expected to close in October, pending shareholder approval. While a deal the size of the CalPERS-RREEF deal requires shareholder approval, the smaller family-style apartment deal does not. Nonetheless, Carpenter said he will put both deals before the shareholders.
It’s unlikely shareholders will have a problem with the industrial or the pending family-style deal, given that the company’s stock surged after the CalPERS-RREEF acquisition was announced. Pacific Gulf plans to make a cash distribution to shareholders in the fourth quarter of 2000 of up to $26 per share from the sale proceeds.
All of which means that, come November, Pacific Gulf may be a much smaller company, a prospect that doesn’t necessarily bother Carpenter, who is eager to again undertake growth.
“I might be 57 years old but I’m still very energetic and look for a lot of opportunities,” he said. “I think there are a lot of things we can do and we’re looking at maybe even starting to build Pacific Gulf all over again.” n
