Laguna Niguel-based apartment and mixed-use property owner and developer Raintree Partners has bought a rental complex in Tustin in what appears to be the priciest apartment deal in Orange County in nearly six years.
The privately held investor, which focuses on properties in major metropolitan areas in Southern and Northern California, this month completed the purchase of Eaves by Avalon, a 628-unit apartment complex near the intersection of the Santa Ana (I-5) Freeway and Red Hill Avenue.
It went for about $164 million, or $260,000 per unit, in the largest single-property apartment sale by total price here since 2010, when Irvine Company paid $241.8 million for a new 884-unit complex in the Platinum Triangle, according to CoStar Group Inc. records.
The complex was sold by an affiliate of Arlington, Va.-based Avalon Bay Communities, which paid a reported $98.5 million for it six years ago.
Eaves by Avalon is on 26 acres just north of the 5 Freeway at 13921 Tustin East Drive, about a mile and a half from the Tustin Market Place shopping center. It has 440 one-bedroom and 188 two-bedroom units in 51 two-story buildings, and includes a gym, tennis courts and multiple swimming pools.
Monthly rents averaged $1,646 per unit late last year, according to Avalon Bay’s latest annual report. The complex was about 96% occupied at year-end, the seller said.
The new owner has plenty of opportunity to increase the property’s value, despite the $65.5 million, or 66%, increase in the sale price since 2010, according to brokers who worked on the deal.
The 48-year-old rental property “is the epitome of a value-add opportunity,” said Joe Leon, managing director of the Irvine office of Berkadia who worked on the deal with colleague Dean Zander in the brokerage’s Los Angeles office.
“With planned interior upgrades, the buyer will achieve a significant premium over the current rental rates, and still remain at rates below the newer competitive set nearby,” Leon said in a statement.
Rancho Tierra Apartments, by comparison, a 252-unit complex in Tustin about 1.5 miles away and owned by Irvine Co., has an appraised value of nearly $88.5 million, or $351,000 per unit, and averages rent of $2,118 per month, according to recent loan documents related to the property.
“The immediate neighborhood is considered an affordable alternative to the Irvine market, and Tustin has enjoyed recent average market rent increases above 6% while still maintaining one of the lowest vacancy rates in Orange County at just 3.7%,” Zander said in a statement.
The deal with Raintree Partners is the third time Leon and Zander have sold the Eaves by Avalon community in the past decade. The complex sold for $123 million in 2006, according to CoStar records.
Hot Market
Tustin recently has had its share of eye-opening apartment deals.
Also this month, Winston Park Apartments, a 92-unit apartment complex near Tustin City Hall, sold for $28 million to a private investor in Irvine. The deal’s capitalization rate was 2.3%, the lowest reported for a local multifamily property in over two years, according to brokers with Morgan Skenderian Investment Real Estate Group who worked on the sale of the property, which is less than a mile from Eaves by Avalon.
Tustin “has a good name within the apartment investment community,” said Morgan Skenderian’s Peter Gillin, who worked on the Winston Park sale.
“It’s one of the more popular and attractive markets” in the region that, together with the limited number of properties coming to market, is pushing up pricing in the city, Gillin said.
Dana Point Project
Eaves by Avalon is the only existing Orange County rental property that Raintree Partners owns, according to the company’s website, which lists 17 properties in Southern California and five in Northern California.
It has at least one other local project in development: the redevelopment of a site on Pacific Coast Highway in Dana Point that it bought late last year for a mixed-use project featuring 109 apartments and 32,500 square feet of retail, according to city records.
CoStar records show Raintree paid $21.4 million for the Dana Point property.
