Essex Property Trust Inc. (NYSE: ESS), one of the largest owners of apartments in the county, has increased its holdings in the area after buying out a joint venture partnership in a four-property, 1,480-unit portfolio that includes a pair of local complexes.
The San Mateo-based apartment investor, which focuses on properties on the West Coast, last month paid a joint venture partner, AEW Capital Management, $505 million for its 49.9% interest in a collection of apartments in Southern California and the state of Washington.
The deal includes The Havens, a 440-unit apartment community in Fountain Valley and Parkside Court, a 210-unit complex in Santa Ana.
The remaining properties were 214-unit Bothell Ridge in Bothell, Wash. and the 616-unit Esplanade in San Diego.
$235M Estimate
Individual prices for each apartment community were undisclosed; records from real estate market tracker CoStar Group Inc. estimate that AEW sold its stake in the two OC properties for about $235 million on a combined basis, or roughly $360,000 a unit.
The cap rate for the seller, AEW, was 5.25%, according to Essex.
“However, after incorporating additional economic benefits by fully integrating this portfolio into our operating platform, we estimate a 5.9% year-one yield,” Essex said.
As part of the deal, the company also repaid nearly $220 million of debt on the properties. The portfolio generated an internal rate of return of 11.4%, officials said.
At press time, shares in Essex were trading around $240 apiece, giving it a $16 billion market cap. Shares in the company have little changed since Essex announced the deal on March 25. Specific properties involved in the transaction weren’t disclosed at the time.
Housing Shortage
The Essex acquisition comes as other real estate investors pour capital into multifamily properties and projects amid California’s housing shortage.
State-mandated housing quotas, a boon for developers, have left local governments scrambling to deliver the tens of thousands of housing units required over the next few years.
As new multifamily products get built, occupancy across existing Southern California rental communities remains high.
The OC properties in the Essex deal—The Havens and Parkside Court—tout occupancy levels of 97% and 96%, respectively. The Havens, located along Slater Avenue in Fountain Valley, a few blocks north of the San Diego (405) Freeway, was built in 1969.
The Parkside Court complex, located about 4 miles away near Newhope Street in Santa Ana, opened in 1986.
6,000 OC Units
Occupancy across Essex’s portfolio, which comprises of nearly 62,000 apartment homes across 252 communities in California and Washington, averaged 96% last year.
Its Orange County portfolio totals 24 complexes and nearly 6,000 units, according to its most recent annual report. Those properties—which include OC’s tallest residential complex, the two-story Essex Skyline towers in South Coast Metro—have been standouts in the company’s portfolio of late, and are expected to continue outperforming in 2024, officials said during their latest earnings call.
“We expect Southern California will produce our highest revenue growth at 3%, led by Orange County and San Diego,” Essex Chief Financial Officer Barb Pak told analysts in February.
Purchase History
Essex gained partial interest in The Havens and Parkside Court in 2014, when the company acquired West Coast apartment investor BRE Properties Inc. in a deal worth about $4.3 billion at the time.
AEW then paid BRE nearly $500 million to do a joint venture with Essex on those communities, along with seven other properties in Washington and California.
BRE was the original owner of Parkside Court, according to data from CoStar. As for The Havens, BRE paid McNeil Real Estate Fund $23.1 million for the apartment community in 1996.
