Highlands Ranch, Colo.-based apartment developer and investor UDR Inc. has entered into a deal in which it could spend $269 million to take over ownership of two rental complexes under construction in the Platinum Triangle.
The publically traded company, an active buyer and developer in Orange County’s booming rental market over the past few years, said last week that it closed on a $136 million joint venture with Scottsdale, Ariz.-based Wolff Co. involving five large apartment complexes under development on the West Coast.
The deal gives UDR an immediate 48% interest in the five-property portfolio that counts 1,533 rental units spread over two OC properties, one site in Los Angeles, and two in Seattle.
The company also has a fixed price option to acquire Wolff Co.’s remaining interest in each community within one year of each project’s completion.
The OC communities that are part of the deal include two adjoining projects under development on Katella Avenue in Anaheim under the “Katella Grand” banner. The two mid-rise complexes encompassing 785 apartments were entitled for residential use a few years ago by Irvine-based Shopoff Realty Investments when they were called Platinum Vista and Platinum Gateway. They were sold to Wolff Co. on undisclosed terms.
The projects are being built on roughly 13 acres a few blocks from the Santa Ana (I-5) Freeway between 905 and 1105 Katella Ave.
Mr. Stox Site
The land previously held older industrial buildings and the Mr. Stox restaurant, a fixture for more than 30 years. The buildings were razed to make way for the apartment complexes.
The first Katella Grand complex, with 399 units, will open early next year. The second, a 386-unit portion, will open in mid-2017, according to UDR.
UDR has the option to buy the Anaheim complexes outright for $269 million, or about $342,000 per unit, according to the company, which also owns the nearby 1818 Platinum Triangle community on State College Boulevard.
In 2010, it paid a reported $70.5 million, or about $266,000 per unit, for the 1818 Platinum complex, which was built in 2008 and has 265 units.
“Between the (Grand) Katellas and 1818 Platinum, UDR will be able to drive operating efficiencies at the three communities,” Chief Financial Officer Tom Herzog said during a recent presentation to investors.
The purchase price would total $597 million, or about $381,000 per unit, if UDR decides to buy all five assets from Wolff Co.
The deal equates to a 5% capitalization rate, which compares favorably to other recent large apartment deals that have tended to trade with cap rates in the 3.75% to 4.5% range, Herzog told investors during the investor presentation.
The first phase of the Grand Katella project, which UDR can buy outright for $146 million, has an average apartment size of about 996 square feet. The second phase can be bought outright for $123 million. Its units will average about 819 square feet.
Features of the first Grand Katella complex will include a full-service coffee shop, a two-level fitness center, a media lounge, catering kitchen, and an interactive wall projection system, among other amenities. The second will feature a rooftop sundeck that “will have unobstructed views of the daily Disneyland fireworks show,” UDR officials said.
The deal for the complexes, if completed, would likely be the priciest apartment sale to date in the Platinum Triangle in terms of both total price and per-unit price.
Several thousand rental units have been built in the Platinum Triangle, an 820-acre swath of largely industrial land surrounding Angel Stadium, in about the past seven years.
Newport Beach-based Irvine Company paid a reported $241.8 million for the 884-unit Gateway project on State College Boulevard in 2008. The deal, completed in 2010, worked out to a price of nearly $274,000 per unit.
Sales of other newly built complexes in the area, some of which were originally conceived as for-sale condominium units, have topped out at a per-unit price of about $322,000, according to Costar records.
Apartments in OC sold last year for an average unit price of $180,100, according to data from Marcus & Millichap.
The Platinum Triangle deals would add to a growing UDR rental portfolio in OC. The company had nearly 3,800 units here as of March.
It said it gets about 13% of its income from OC-based properties. Rental income at complexes it owns here is up nearly 12% year-over-year, the company said this month.
Other OC Projects
UDR has several other notable projects in the pipeline here:
The $125 million 2801 Kelvin project is being built on the former site of an industrial property a few blocks from the Diamond Jamboree shopping center in Irvine at the intersection of Jamboree Road and Kelvin Avenue. The 381-unit complex project is a joint venture with New York-based insurer MetLife Inc. and is expected to be finished in early 2017.
The $125 million valuation of the Irvine project works out to a price of nearly $328,000 per apartment.
Other local projects UDR has under way include the 516-apartment portion of the Pacific City development in Huntington Beach, where work will begin this year.
